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The Functionality of Virtual Organizations Matti Vartiainen Laboratory of Work Psychology and Leadership, Department of Industrial Engineering and Management, Helsinki University of Technology, Finland,

Abstract The objective of this paper is to study, how well the new organizational forms called virtual organizations are functioning. The ultimate purpose is to develop a more coherent theoretical account of virtual organizations and their various forms, e.g. teams, companies and networks. The practical aim is to develop bases to analyse and model virtual organizations. In the first chapter, reasons for the emergence of virtual organisations are discussed. The second chapter deals with the background of virtual organizations, the concept ‘virtual organization’ is defined, and different forms of virtual organizations as objects of the study are described. The third chapter summarizes some empirical findings concerning virtual organizations including three own case studies. Advantages, disadvantages and some managerial implications are presented. And finally, questions are dealt, what to study in virtual organizations, and how to study them empirically. This review is based on selected written material and on three own case studies.

Keywords : virtual organization, advantages, disadvantages, research methodology

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1. Where new organizational forms come from? 1.1 Driving forces of organizational development The development of theoretical concepts as ‘virtual organization’ is related to developing technologies and new organizational practices in a cyclical manner. A model (Fig. 1) describes quite well driving forces behind various forms of virtual organizations. The driving force may be a new business practice, e.g., a globalised business is not possible with a local organization, a new technology, e.g., mobile and wireless information and communication technology (ICT) creates possibilities to work in any time and place, and even a new strategic thought, e.g., of developing a virtual community.

New organizational thinking: - concepts - strategies - images

- theories - policies -

Shapes the perceived significance of New technologies:

Demand updates in

- technological capabilities - ‘enablers’ of work designs

New practices: -

organisational designs work processes products and services

Help to catalyse and support

(creating new dynamics)

Figure 1. New organizational thinking, technologies and practices (Jackson 1999, 5). As is understandable, virtual organizations are needed for several purposes and are justified by several reasons. New products, the globalisation and internalisation of businesses create new kinds of challenges for the management of work processes and practices. The globalisation of economies and businesses increases the number of boundaryless enterprises creating multi-site working in cross-cultural contexts. In order to take full advantage of these changes business must organize itself along radical new lines. For example, small and medium-sized companies are networking to uphold their position in the marketplace. The business environment is turbulent and evolving requiring flexible and fast responses. At the same time, new information and communication technologies are introduced to facilitate the ongoing change. ICT is often considered to be the main driving force of the societal change into knowledge society. Fast progress of information and communication technologies provides technical bases for the globalisation. The ICT has enabled a decentralization of work. Evolving technologies also create pressures for new organizational structures and job contents. Future mobile and wireless technologies will revolutionize the working life totally by increasing possibilities to work whenever in any place. It is clear that organizations in both the private and public sector have to redesign themselves to utilize fully these new technologies if they are to survive in the dawning spatially and temporally compressed world. Therefore, the number of virtual organizations increases.

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1.2 Open systems in turbulent fields The need for work systems’ flexibility, adaptability and development seem to be a central justifier for virtual organizational structures. In the traditional socio-technical systems (STS) theory, work systems were considered open systems with respect to their external environment continuously reorganizing their internal sub-systems to achieve a “steady state” at a level where they can still perform their tasks. This indicates that the external environment has a decisive role in work system functioning. Environments, however, differ requiring different adaptation mechanisms. Emery and Trist (1997, orig. 1963) outlined ideal environmental models into four types: 1. A stabile, placid environment, where organizations’ response is a simple tactic of attempting to do one’s best on a purely local basis. 2. A placid, clustered environment, where the new feature of organizational response is the eme rgence of strategy as distinct from tactics. 3. A disturbed-reactive environment, where organizations’ response needs an intermediate level of the operation in addition to tactics and strategy. 4. 'Turbulent fields', where dynamics arise not simply from the interaction of the component organizations, but also from the field itself. The dynamics of globalised markets has generated turbulent fields to many work systems. The reality of many organizations consists of a variety of different environments. How to cope with them? Work systems’ internal capability, that is, their redundancy, provides principled means to meet external challenges and to be purposive. In the STS theory, ‘Redundancy’ was considered a princ ipal, intra-system means to cope with external complexity and to achieve flexibility in performing a system’s task. This traditional concept may provide a basis to describe and understand flexibility needs and competences also in today’s virtual organizations applying new technologies. 1.3 Virtual organizations as redundant work systems There are two basic ways of building redundancy (Emery 1993, orig. 1976) in organizations. First, redundant parts can be added to the system. Each part is replaceable; as and when one part fails, another takes over. In practice, the redundancy of parts means hiring of new single purpose employees and implementing new single purpose tools and technologies into a work system. Second, redundant functions can be added to the parts, that is, recruit competent employees, tools and technologies. When a multiple purpose part fails, other multiple purpose parts can assume the function. The traditional STS approach emphasized the redundancy of functions as the main and human-centred manner to increase systems' flexibility capacity by developing individual competencies and by organizing work as group work. Different environments require different forms of an organization. As early as Herbst (1976) proposed from organizing viewpoint individual jobs for the stable, placid environment and autonomous groups for the placid, clustered environments. And correspondingly, matrix groups for disturbedreactive environments and network groups for ‘turbulent fields’. A network group was described as consisting of members dispersed individually or in small subsets meeting only infrequently for a work session and direct communication. Adding the possibility

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of asynchronous working time and the use of ICT result in the definition of a virtual team. The development of ICT and virtual organizations has questioned the strict division of the two forms of redundancies (Fig. 2). Redundant parts, i.e., ICT, have new functional and smart qualities compared to traditional technologies. This has as well raised the question, how technologies enlarge capabilities of employees in virtual working? This topic has come out in discussions on individual and organizational memories and their tools, e.g., learning and knowledge support environments, and mechanisms (Kasvi et al. 2000).

Placid, clustered environment: some instability

Forms of virtual organizations as A moment of bifurcation, adaptive mechanisms threshold of chaos

Placid, randomized environment: order, predictable

Disturbed-reactive environment: continuous instability

fields: chaos

Figure 2. Adaptive organizational mechanisms, e.g., a virtual project, as a regulatory mechanism in various activity environments. In principle, information and communication technologies provide a large set of tools to enhance communication and knowledge management in virtual organizations. There are tools for knowledge capturing: data analysis and data mining, storing: databases, decision making: decision support systems, performing: electronic performance systems, and transferring knowledge and communication: telephone and teleconference, email and videoconferencing. In addition, there is an increasing number of applicable web tools available including web conferencing and environments that allow shared workplaces and databases. The concept ‘Redundancy’ is still relevant and valid when trying to understand and model work systems in various environments. Its content, however, needs to be revised. Instead of two redundancies, we could use three redundancies in increasing the system’s flexibility capacity: the redundancies of parts, functions and knowledge. Virtual working needs the integration of the three redundancies as an adaptation mechanism in a turbulent environment. These redundancies are so closely interconnected that you cannot select “either or” but “both and”. For example, information and knowledge is so embedded in hardware that it is almost impossible to supply “pure” technology. Employees as well cannot cope with complexity without communicating face-to-face and using different ICT memory tools. In a predictable, placid environment, classical ‘Redundancy of Functions’ is enough. The more turbulent and chaotic the environment becomes, the more is needed the integration of various redundancies. According to Ashby’s law external variety requires internal variety: the integration redundancies of functions is needed the more the degree of environmental turbulences increases.

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2. Dimensions and types of virtual organizations The background of the concept 'Virtual Organization' dates back to the 80's groupware technologies (Baecker 1993), and to the resulting discussion on telework, and on visions of virtual corporations (Davidow & Mallone 1992, Byrne 1993). Multi-site, multiorganizational and dynamic organizations began to appear in the 1970s (Snow, Lipnack & Stamps 1999). In the middle of 90's, the first empirical studies were done to understand the nature of virtual organizations and working. 2.1 Dimensions of virtual organizations Virtual organizations are often characterized with three dimensions: space (same place – dispersed), time (synchronous – asynchronous) and mode of interaction (face-to-face – electrical). Individual diversity (similar – different) could be the fourth dimension (Fig. 3). In a non-virtual organization, employees similar to their cultural and national background are working in a same room, at the same time, and communicating face-to-face. In virtual organizations, employees work geographically dispersed, often asynchronously and are linked with each other by using various communication technologies. People involved may speak several languages and have diverse cultural, educational and vocational backgrounds. This brings along a strong cultural emphasis. Thus the virtual organization challenges the traditional working here and now, and communicating face-to-face. In order to overcome temp oral, spatial and organizational disablers, ICT is utilized both as means of communication and as a collective memory. In addition, virtual organizations have been described, for example, with the following characterizations: an alliance for a common goal, concentration on knowledge products, temporary nature of an organization (a project), flexibility of working time and place (e.g., telework), diversified and multicultural workforce, mobility of work force, vertical integration, no hierarchy, decentralized, decreased use of offices, etc.

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Individual diversity

Space

Time

Mode of interaction

= non-virtual organization

Figure 3. Dimensions of virtual organizations (Modified based on Gristock 1997).

Space. In their review, McDonough et al. (2001) note that if team members cannot be collocated they may as well be miles apart, since even a small degree of dispersion among team members will negatively affect the degree of trust and the degree of cooperation between them. Physical proximity is said to reinforce social similarity, shared values, and expectations, and to increase the immediacy of threats from failing to meet commitments (Jarvenpaa & Leidner 1998). The geographical dispersion also makes communication among team members complex. Cascio (1999) considers the lack of physical interaction as the major disadvantages of virtual teams with its associated verbal and non-verbal cues, and the synergies that often accompany face-to-face communication. Thus, we would expect that team members collocated on the same floor would engage in different behaviours than team members in the same building but on different floors, in different parts of the same country, or in different parts of the world. Time. For most virtual teams, synchronous interaction, either face-to-face or electrically mediated, is a scarce resource. Work tasks are often realized asynchronously. In global virtual teams, as the distance increases and more time zones are crossed, the possibility to work synchronously decreases. Snow et al. (1999) write about R&D team at Texas Instruments, who has turned this type of situation into an advantage by dividing its members among locations in France, California and Japan, and then passing work sequentially so that a 24-hour workday was achieved. Mode of interaction. Dispersed working asynchronously emphasizes the meaning of information and communication technologies as communication mode. New mobile technologies provide more and more possibilities to flexible communication in any time and place. Wiesenfeld, Raghuram and Garud (1998) compared different communication media with respect to accessibility, formality, shared interpretive context and social context cues (Table 1). Table 1. Comparison of different communication media (Wiesenfeld et al. 1998). Face-to-face

Document

Telephone

Electronic mail

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Accessibility/ Synchronicity

Synchronous with respect to time and place

Asynchronous with respect to time and place

Formality

Dependent upon communicators Facilitates creation of interpretive context

Highly formal

Strong

Moderate

Shared interpretive context

Social context cues

Synchronous with respect to time; asynchronous with respect to place Dependent upon communicators

Moderate

Asynchronous with respect to time and place

Highly informal Facilitates communication within established interpretive context Weak

Electrical communication as the only mode in virtual working has, however, been strongly questioned from the viewpoint of developing trust. Face-to-face encounters are considered irreplaceable for both building trust and repairing shattered trust. Jarvenpaa and Leidner (1998) note that “Paradoxically though, only trust can prevent the geographical and organizational distances of global team members from becoming psychological distances: trust allows people to take part in risky activities that they can not control or monitor and yet where they may be disappointed by the actions of others.” The future will show, to what extent the features of ‘virtual presence’ can be created and used in virtual working environments. Individual diversity. In their review, McDonough et al. (2001) also note that cultural diversity impacts team behaviour. Multicultural teams have higher levels of creativity and develop more and better alternatives to a problem than teams with less cultural diversity. Such teams, however, can also have difficulty in developing a task strategy and troubles solving conflicts, creating cohesion and building trust. Different language and culture makes communication among team members complex. 2.2 Types of virtual organizations There are different types of virtual organizations (Fig. 4). They can be classified by starting from the needs of human interaction and communication. The communication concerning the joint group task organizes people to work together. The main division is made between communities and work organizations. Communities are driven by common interests and informal communication, whereas work organizations by common goals and tasks, and more formal communication. They both can be realized with virtual qualities. This paper deals with virtual work organizations. There may be informal and formal virtual organizations. The first ones are often called communities instead of formal work organizations. Rheingold (1993) defines ‘virtual communities’ from the viewpoint of Internet as “.. social aggregations that emerge from the Net when enough people carry on those public discussions long enough, with sufficient human feeling, to form webs of personal relationships in cyberspace.” The definition emphasises interaction only via information and communication technologies. In communities, people communicate and interact voluntarily, sometimes grouped in small

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clusters, sometimes acting individually. Communities do have a common interest, but not necessarily a common goal, which characterises work organizations.

Human interaction and communication structures

Communities driven by common interests

Type1

Type2

Type3

Type4

Work organizations driven by common goals and tasks

Network

Company

Team

Dyad

Figure 4. The classification of different forms of human interaction and communication structures. Virtual work organizations are divided into networks, companies, teams and dyads (Table 1). Virtual organizations are essentially network organizations. Typically a company develops its strategy around its core competences and then searches for partners whose expertise and resources complete its own competencies. When the network of partners is spread across large geographical areas, and when relationships change frequently, the organization is considered to be virtual (Snow et al. 1999). Virtual organizations are often a group of teams. The activities of large virtual organizations are performed by teams that form among parts of the cooperating organizations. Virtual teams are a kind of “basic cells” of virtual organizations, and, therefore, a significant unit of study. Snow et al. (1999) describe different variants of virtual teams. They describe a distributed team from space and time viewpoints. Distributed teams are composed of people in the same organization who work in different places, either interdependently (e.g., a multi-site product development group), or separately (e.g., branches and local offices). The dimension of organization is also important. There are various cross-organizational teams. Collocated cross-organizational teams comprise people from different organizations who work together in the same place. Distributed cross-organizational teams involve people from different organizations who work in different places. They consider the most extreme type of virtual team one that is cross-

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Table 1. Examples of definitions of virtual work organizations.

AUTHORS Byrne, J.A. (1993)

Hyötyläinen, R. (2000)

DEFINITIONS Virtual corporations (networks) ”A temporary network of companies that come together quickly to exploit fast changing opportunities … companies share costs, skills and access to global markets with each partner contributing what it’s best at …” “Enterprise networks include three types of companies. The core of the network consists of the strategic network … A strategic network usually has one distinct core company … At another level are the partner companies … At the third level are delivery contract companies … Enterprise networks form “virtual companies” within them … Virtual companies operate for a fixed period of time. When the task has been carried out, the virtual company is dissolved”

Virtual organizations Ahuja, M.K. & Carley, K.M. (1998) Snow, C.C., Lipnack, J. & Stamps, J. (1999)

Lipnack & Stamps (1997); Snow, Lipnack & Stamps (1999) Jarvenpaa, S.L. & Leidner, D.E. (1998) McDonough III, E.F., Kahn, K.B. & Barczak, G. (2001)

“A geographically distributed organization whose members are bound by a long-term common interest or goal, and who communicate and coordinate their work through information technology.” “The key factors that we believe set a virtual organization apart are that its members work across space, time, and organizational boundaries … virtual organization can be defined as those that are multisite, multiorganizational, and dynamic.” Virtual teams “A group of people who interact through interdependent tasks guided by common purpose” that “work across space, time, and organizational boundaries with links strengthened by webs of communication technologies” “We define a global virtual team to be a temporary, culturally diverse, geographically dispersed, electronically communicating work group.” “Virtual NPD (New Product Design – MV). teams are comprised of individual who have a moderate level of physical proximity and are culturally similar.” “Global NPD teams are comprised of individuals who work and live in different countries and are culturally diverse.”

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organizational and that rarely meets in the course of doing its work. Common forms of virtual teams are task forces and project teams as temporary groups. Such teams are formed specifically to solve a particular problem or to perform a specific task. When the problem is solved or the task completed, the virtual team disappears and team members go back to their normal duties.

3. Experiences on Virtual Organizations 3.1 Empirical findings The material on virtual organizations may roughly be divided into three categories: (1) material including conceptual descriptions and definitions, (2) empirical studies showing some features of virtual working, and (3) material including managerial implications. The number of empirical studies made on virtual organizations is still limited, although they would be needed to find out critical success factors. Some preliminary conclusions can, however, be made concerning reasons to implement virtual organizations, their advantages and disadvantages.

Advantages The traditional advantages attributed to virtual organizations include adaptability, flexibility, and the ability to respond quickly to market changes (Grabowski and Roberts 1998). The following list describes advantages and reasons to implement virtual organizations: As companies expand globally, face increasing time compression in product development, and use more foreign based subcontracting labour, virtual teams promise the flexibility, responsiveness, lower costs, and improved resource utilization necessary to meet ever-changing task requirements in highly turbulent and dynamic global business environments (Jarvenpaa & Leidner 1998). The sales division of a large international computer company implemented a mandatory virtual work program. It was initiated both for the cost reduction, i.e., minimizing real estate expenses, and strategic, i.e., encouraging closer contacts with clients and customers, purposes (Wiesenfelt, Raghuram & Garud 1998). Reduced real estate expenses: IBM saves 40 to 60 per cent per site annually by eliminating offices for all employees except those that truly need them. Increased productivity: internal IBM studies show gains of 15 to 40 per cent. High profits: Hewlett-Packard doubled revenue per salesperson after moving its sales people to virtual workplace arrangements. Improved customer service: Andersen Consulting found that its consultants spent 25 per cent more “face time” with customers when they did not have permanent offices (Cascio 1999). Eliminates lack of access to experts. Team can be organized whether or not members are in reasonable proximity to each other. Firms can use outside consultants without incurring expenses for travel, lodging, and downtime. Virtual teams allow firms to expand their potential labour markets, enabling them to hire and retain the best people regardless of their physical location. Employees can accommodate both personal and professional lives. Dynamic team membership allows people to move from one project to another. Employees can be assigned to multiple, concurrent teams. Team communications and work reports are available online to facilitate swift response to the demands of a global market (Cascio 1999). Global teams are needed, because companies move into multinational markets. It is necessary to understand globally distributed customers who locate in different countries, speak different languages, have different sets of cultural beliefs, and who express their preferences in different ways. The needed expertise can be scattered throughout the world (McDonough, Kahn & Barczak 2001).

Disadvantages Several disadvantages and costs are also mentioned in the material concerning virtual organizations:

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-

-

-

Such dysfunction as low individual commitment, role overload, role ambiguity, absenteeism, and social loafing may be exaggerated in a virtual context. Customers might perceive a lack of permanency, reliability, and consistency in virtual forms (Jarvenpaa & Leidner 1998). Lack or interaction: there is a tendency for an “in-group” and an “out-group” to develop based on the dominant language. Lack of creative informal interactions. No sense of identity: “It’s really difficult to develop ‘we’ feeling; it’s as if whilst we are out of sight we are also out of mind. The team has no real identity. We’ve never had that from the beginning” à no trust and real commitment to their goal, timetables not held. Who’s who: experienced project workers report frequently that they don’t know, who the other members of the team are or what they have to offer à in collocated projects, the informal networks have developed. The difficulty of meeting: getting people together is costly. Meetings’ agendas tend to be too full à virtual meetings: audio, video and bulletin boards on the e-mail. The impact of time zones: bitter complaints about the constant invasion into private and family life from telephone calls. It is hard to imagine the situation in other locations. Travelling imposes burdens and stresses (Hastings 1999). Problems with the technology: hype relating to video conferencing, groupware and other forms of communication technologies has created unrealistic expectations (Hastings 1999). The lack of physical interaction: the meaning of verbal and non-verbal cues in communication (Cascio 1999). The additional cost required to equip a mobile or home worker varies roughly US$3000 to $5000, plus about $1000 in upgrades and supplies every year thereafter (Cascio 1999).

Functionality A superficial review on empirical studies (Table 2) show, that virtual organizations are not managed very well. Their performance is not good enough. There are some familiar features like development of hierarchies but the answers are often different from traditional organizations. Because of their dispersed nature, virtual organizations are not as transparent as traditional organizations and, therefore, need special managerial

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Table 2. Empirical studies on virtual organizations (VO). AUTHORS Ahuja, M.K. & Carley, K.M. (1998)

Jarvenpaa, S.L. & Leidner, D.E. (1998)

Wiesenfelt, B.M., Raghuram, S. & Garud, R. (1998)

McDonough III, E.F., Kahn, K.B. & Barczak, G. (2001)

RESEARCH QUESTIONS - What is the structure (degree of hierarchy, centralization, and hierarchical levels) of VO? - What is the relationship among task routines, organizational structure and performance? - Can trust exist in global virtual teams where the team members do not share any past, nor have any expectation of future interaction? - How might trust be developed in such teams? - What communication behaviours may facilitate the development of trust? - How do employees in a virtual context build and sustain organizational identification? - What is the role of information technologies in the creation and maintenance of a common identity among decoupled organization members?

- To investigate the use of global new product development (NPD) teams, and examine whether such teams differ from virtual and co-located teams in terms of their use, management challenges, and ability to perform.

DATA AND METHODS - Email interaction during four months among members (n=64) of virtual research organization. - Questionnaire and interview to determine task routines and performance. - Publication archives on objective performance of group members. - Data was generated from electronic mail archives and two questionnaires assessing trust and its antecedents and outcomes from global virtual teams (students, n=75) collaborating six weeks. 12 teams were selected for case analysis.

CONCLUSIONS - There were evidence of hierarchy and centralization in VO. - The fit between structure and task routines affects the perception of performance, but not the objective performance. - VO is dissimilar to traditional organization as fit did not predict objective performance.

- A total of 325 sales employees in a international computer company were surveyed (n=276 respondents). - Employees worked both in office, at home and in clients’ office. - Number of days spent in office, communication (face-to-face, document, telephone, email) frequency with other organization members, and organization identification were measured. - A three-page questionnaire to managers and directors in marketing, engineering and R&D (n=103).

- Virtual workers’ strength of identification with the organization depends upon the frequency of electronic communication with other organization members. - Electronic communication is a more critical means by which high virtual status employees create and sustain their organizational identification, whereas phone communication is more critical to low virtual status employees.

- Global virtual teams may experience a form of ‘swift’ trust but such trust appears to be very fragile and temporal. - Communication behaviours may facilitate trust. The first impression seems important. Communication about the project and tasks is necessary, complementing social communication may strengthen trust. Responsing behaviours are as critical as initiating behaviours, and members have to explicitly verbalize their commitment, excitement, and optimism.

- The use of global teams is rapidly increasing, 54 companies used. The use of co-located teams remains constant, the use of virtual teams is declining. - Global teams experience more behavioural challenges (trust, interpersonal relationships, communication) than collocated and virtual teams. - There are least management challenges (identifying customer needs, stable project goals, staying in budget, keeping schedule, having sufficient resources) in collocated teams. - Performance: collocated > virtual > global.

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attention to function. The most often mentioned prerequisite for functioning is ‘trust’ and various communication practices, that are provided to create it, even a ‘swift trust’.

3.2 Cases We explored in a pilot study the requirements and the use of information and communication technologies as support tools in three virtual projects (Vartiainen & Kasvi 2001). The research question was: how do virtual projects function and use emerging technologies? Data and Methods The data consists of three cases 1 . Case Project A operated within national borders. Three workstations were established in a distant location to let the project staff to choose their working site more freely. The project crossed geographical, but not temporal borders. Because of the client’s different organizational culture, the project was also a meeting point of two organizational cultures. Case Project B was crossEuropean and aimed at developing an information system. Case Project C was also European. After the prototype building, system building, product testing and system rollout were done simultaneously in different countries. The projects were studied mainly by qualitative methods. The data was collected by analysing project documents, and by interviewing project participants (n=15). The interview themes included the following main topics: project description, use of technology, significance of face-to-face meetings, critical success factors, benefits and challenges. The interview data was analysed and classified into two broad categories: challenges and best practices.

Results None of the projects were completely virtual. All of them had a face-to-face phase in the beginning (Table 3). Problems of leadership were mentioned in every case. All the interviewees mentioned some restrictions in their communication through media. Mobile technologies were used only seldom except mobile phones. All of the projects used the knowledge management system to support project management processes and to document archiving. Net-meeting was used frequently only in one project, videoconferencing as well. In all, the limits of support technologies were met in communicating of complex messages. There were some cultural differences mentioned between the organization and the client, but also between remote sites. To work in virtual projects seem to requite specific individual traits, e.g., autonomy, ability to take responsibility, openness and ability to communicate. Discussion The case studies showed that all the projects needed non-virtual phases and meetings. The support technologies used could not guarantee the sufficient communication and

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Marko Malmberg collected the data for his thesis.

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Table 3. The challenges and best practices appeared in the studied three virtual projects.

PROJECT A

PROJECT B

Challenges - Electronic communication: inadequate Electronic communication: not convincing,

Best Practices

PROJECT C

- Electronic communication: the huge especially in case of a highly complex or a lack of body language and unclear amount of daily e-mails, for remote teams it critical message. Was the message meaning of voice tune, hard to present a was hard to describe problems by understood? problem as a text or verbally without telephone and e-mail including - Leadership: it was hard to anticipate future drawings. attachments and fax. problems and foresee the project staff’s - Leadership: same as in Project A. - Leadership: same as in Project A. The ‘happiness’, because of scarcity of face-to- Cultural diversity: verbal project manager could not go around all face contacts. misunderstandings. the remote sites, feelings of non- Cooperation with the client is hard virtually:- Temporal differences: because of theappreciation. definition of the client requirements, different time zones, the common working- The integration of expert knowledge through continuous checking and feedback of hours were few. 24-hour availability is costly. virtual media was difficult. products and outcomes, checking the outcome of the client’s performance. - Fixing programming bugs and testing the - Communication in a large project was - Instructions how to communicate, e.g., product virtually worked out, if the tasks were tackled with (a) a proper knowledge how to handle messages including specified in advance. management tool, and (b) a communication negative feelings, and to avoid futile - Disseminating knowledge by e-mail was plan. messages. easy, and Net-meeting applicable for asking - Decreasing the amount of communicating - The project manager’s positive messages help and advice, e.g., in programming through different media. and a project climate survey to create good - Starting project face-to-face in project and - Double-communicating in critical issues. spirit in the project. with clients: trust, team spirit, and- Centralized functions: coordination, - Delegating tasks to local team leaders. acknowledgement of shared goals, easier e-resource allocation, system building and - The local leaders should report on the true communicating afterwards fixing, collecting feedback, rollout support progression of the project. - Rollout information pack age, e.g., document templates, procedure descriptions. - A committee to arrange in formal and formal face-to-face meetings.

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performance support or building of a social community necessary for efficient cooperation within a project. Leadership practices and the meaning of face-to-face phases were underlined in identified best practices. Virtual working did not remove the meaning of social element. The case projects showed that ICT was mainly used for communication in the projects, in the implementation phase also for knowledge support, e.g., the use of document templates and procedure descriptions. Mobile technologies were used seldom. The findings concerning electronic communication methods were contradictory as, on one hand, they were found to be inadequate to communicate complex messages or messages including non-verbal information, but, on the other hand, they were found to deliver too much information. In spite of the observed problems, the role of ICT seems to grow, especially in larger projects. A basic methodology like standards and process models seem to provide a firm basis for virtual projects. 3.3 Some managerial implications Firms need to recognize the different problems that may be associated with managing collocated and dispersed organizations, and prepare their managers and team members for working in different types of virtual organizations. Understanding organizational innovations as multi-component activity systems helps to optimise their future implementation and use, and increases management competencies. Managers may derive many practical conclusions and recommendations from the empirical investigation of virtual organizations. Hastings (1999) notes that project leader’s role has a far greater proportion involved in communications within the team and externally than would be normally the case. Snow et al. (1999) consider managerial philosophies that do not allow for large amount of members influence and autonomy as barriers to the development of virtual organizations. The difficulties of human communication, institutional inertia, and people’s reluctance to change, together with limits to the still-evolving technologies supporting cross-boundary collaboration, impair the effectiveness of virtual organizations. Other management challenges in global virtual teams are those relating to ensuring communication, building trust, etc, and those relating to managing the project and its schedule, budget and tasks (McDonough et al. 2001). It is possible that all tasks are not suitable for virtual organizations. According to Ahuja and Carley (1998) expertise- and competence-based, information and communication intensive tasks utilizing distributed resources are suitable. Jarvenpaa and Leidner (1998) recommend that managers should carefully select individuals for virtual teamwork: qualities such as responsibility, dependability, independence, and self-sufficiency are needed. In addition, they state that a clear definition of responsibilities might smooth coordination, as a lack of clarity may lead to confusion, frustration, and disincentive. If the work is only a part of the team members’ responsibilities, providing guidelines on how often to communicate and inculcating a regular pattern of communication, will increase the predictability of the team’s coordination. Ensuring that the team members have a sense of complementary objectives and share in the overall aim of the team will help prevent the occurrence of desultory participation. One strategy to handle conflicts is to address perceived discontent as early as noticed, another strategy is to address as much as possible to only the concerned individual. Several authors underline the meaning of both electrical and face-to-face communication. Wiesenfelt et al. (1998) recommend that managers must provide the ‘hardware’, i.e., separate telephone lines at home, email, teleconference, LAN, to facilitate communication and the ‘software’, i.e., training that enables the virtual worker in the use of the system, to encourage its usage. At the same time, it is important to enable face-to-face contact to further strengthen the group identity or organizational identity that is formed in virtual space. Hastings (1999) underlines that the communication technologies alone cannot create effective virtual teams. They have to be complemented by more people-centred ways of communicating. For certain kind of interaction, such as reaching consensus and

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negotiating complex agreements, there is no substitute for face-to-face meetings. The face-to-face meetings must be carefully prepared. Their purpose should be clear, information available in advance, time structured during the meeting, and enough informal and social time before and during meetings. In addition, Hastings (1999) provides the following guidelines for managers: In the beginning, the directory of people involved in the project should be made: who is who, what they are doing, skills and experiences, contacts. It is beneficial to have people travel in pairs and trios à builds informal relationships. People not only travel but can be switched between sites for longer periods. Building bridges for people from different cultures: language training, cultural awareness workshops, translation of key documents (project scope, key elements of the project plan). Counterparts or buddies can be jointly accountable for parcels of work. Peoples’ recognition and celebrating their successes and efforts, remembering their birthdays, etc.

4. Research considerations New, evolving forms of virtual organizations in the edge of known and unknown create an exceptional possibility to study new organizational forms and their human outcomes in their developmental process. For organizational scientists, this provides a kind of ‘laboratory’ to test various hypotheses based on the classical concepts and empirical findings.

What to study? The content of research certainly covers all the topics of traditional organizational studies. It is evident that research must concentrate on the following themes: Space (same place – dispersed). Multi-located working raises several questions. The degree of disperseness varies a lot already in traditional organizations. The distance influences inevitably on the communication opportunities. The basic question is, if longer distances have varied effects on the arrangements of virtual working? Does a trust, an identification, a cohesion, and a commitment exist in virtual teams and upon what are they based? Is a trust qualitatively different from traditional conceptualisations of trust? Swift trust? Time (synchronous – asynchronous). Time touches virtual organizations in at least two meanings. First, how to organize and work concurrently and at different times? Second, virtual organizations are mainly temporary structures. They have their life cycle, and resulting effects on their members’ tasks, roles and attitudes. Mode of interaction (face-to-face – electrical). What are the most effective ways of communicating social information in virtual teams? We need to understand the effective leadership styles and contrast virtual teams with and without initial face-to-face contact. ‘Virtuality’ is often considered as the synonym of electrical communication. A lot of promises is loaded on the information and communication technologies supporting virtual working. How do these tools and artifacts really support virtual organizations and what is their usability? Individual diversity (similar – different). Dispersed working in different companies and countries bring along employees with diverse cultural, ethnical and linguistic backgrounds. What is the diversity’s real influence on virtual working? Group processes. Virtual organizations are temporary structures having their life cycle. Member diversity is inevitable. Research is needed on the virtual team member profile, task requirements, and technology capabilities. Why some groups are capable of addressing problems and conflicts early on in the group’s life? What are the necessary conditions for virtual teams to learn dynamically and engage in team processes that allow the teams to redirect their activities at a halfway point or at a similar logical point of their life? Boundary management in virtual organizations. How is knowledge and learning best transferred from one globally dispersed virtual team to another? What kinds of change models are needed to help managers to transform hierarchical organizations into virtual organizations? Performance of virtual organizations. How the effectiveness of changes from traditional to virtual models can be measured? What is the relationship between social capital and business success?

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How to study? What kind of research strategy should be selected to study virtual organizations? On conceptual level, clarifications are needed in definitions of the key concepts, types and levels of virtual organizations. As there are still few empirical studies, their number must be increased in order to find recommendations and guidelines, how to arrange the daily life in these new organizational forms. Action research is needed to develop new leadership and management practices. Both quantitative and qualitative data is needed. The features and functions of each virtual company should be analysed, modelled and evaluated by collecting documents, observing and interviewing personnel, and making questionnaires. Case studies and their analysis provide the deepest knowledge but have the well-known problems of how to generalize. Action research is also needed. By action research we mean that results of the study are provided for the company development. The research approach will be very much qualitative, utilizing ethnographic method to investigate the social processes, actions and meanings involved in creating and sustaining the virtual organizations. The collection of data is a challenge. There are not much experiences of using such traditional methods as network and communication analyses, information flow and network analyses. New methodologies are just emerging. In addition, the collection of empirical data is complicated and costly, because of dispersed, often global working.

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