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Five Keys to Building a Virtual Organization

By Sean M. Hugo, CPA

Advances in technology has brought about an increase in virtual organizations.  A virtual organization contracts out all activities except those in which it is superior.  This brings a network of independent companies together - each doing what it does best - acting together as if it were a virtually a single organization. The virtual organization model provides several key strategic business advantages.

  • Allows adopting firms to concentrate on what they do best and outsource the rest.
  • Provides flexibility of size.
  • Allows firms to gain size without gaining critical mass.

While the virtual organization business model has many advantages there are a couple of disadvantages firms should consider before adopting this model.

  • When working within a virtual organization you have to work very closely with other companies and you may have to share proprietary information.
  • Since there are several other companies involved you will lose some control.

Key organizational design issues that need to be addressed as follows:

Partnering strategy - This delineates the company's role in the network of companies and determines the activities to own and perform and those to outsource.

External relationships - Once a company has decided its role in the network and which activities it will perform and which it will contract out, it needs to design process to coordinate the activities performed by third parties.

Partner selection - One of the most important things to do is to understand a potential partners strategic intentions.  The selection of a partner takes a lot of time and effort but is worth in the long run. 

Partnership structure - There are three main types of partnership structures commonly used today.

  • Operator model
  • Shared model
  • Joint venture

Supporting policies - The ability to work with people from different organizational cultures is vital. 

If you would like to discuss if your organization can thrive as a virtual organization call our office for a consultation at 405-759-2796.