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Virtual Corporations

Virtual Corporations

The online collaboration activities of today's business world have led to an environment where multiple firms can come together to meet customer demands, forming temporary partnerships known as virtual corporations (often called virtual organizations or virtual enterprises). These hyper-agile entities move through the business world, dissolving and reforming as necessary to complete supply or production chains and to market products to consumers. Instead of operating by the formal contracts and carefully constructed procedures traditional companies use in partnerships, virtual corporations are brought together by specialization and efficiency, working on a customer by customer basis without using long-term contracts.


The modern online tools of communication make the success of virtual corporations possible. Companies use these tools to collaborate on production. One business may be able to specialize at manufacturing beverages, and have an online relationship with another firm that specializes in the distribution of beverages. These two companies work together, interacting shipment to shipment to move the products to consumers. Email is, of course, an integral part of this process, but social networking and other Web 2.0 applications also help. Thanks to online forums, employees from both companies can meet to discuss particular issues or work details whenever necessary, communicating necessary information instantly. Blogs are used for updates throughout the virtual corporation, while chat rooms can be used for meetings and wikis for research or paperwork purposes. One of the most important Internet concepts for virtual corporations is the paperless business, where legal documents are emailed and signed by certified e-signatures without the need to send or receive physical packages. A complete virtual organization will, in the end, be able to conduct nearly all of its business through online platforms, especially its communication with partnering companies.

There are three distinct types of virtual organizations, based on how companies conduct their business:

  • Online. Online virtual organizations operate in the e-commerce realm with fully electronic business structures. These organizations uses online applications to provide services, with the least amount of physical office space required. and eBay are both cited as examples of popular online organizations. These companies usually participate in some form of virtual corporation to distribute or produce their products and services, but they are not part of a partnering network.
  • Collaborative. Collaborative virtual organizations are those which make use of IT applications to find other companies online which can provide necessary services. Skills, areas of expertise, and knowledge resources are combined to create an effective supply chain which the business would not otherwise be able to provide. These companies have established specialties and usually a physical location, but not the means to fully produce or distribute their goods or services. From this collaborative definition comes the most common concept of the virtual corporation, an online partnership of companies that work together to provide the full range of services a traditional company would normally possess within a single entity. Because each one of the collaborative companies specialize, higher quality is achieved in production and service.
  • Hybrid. Hybrid companies switch between being merely online organizations, and being collaborative organizations in a virtual corporation. In certain areas they are able to achieve goals independently, but in other processes they depend on their virtual corporation to carry tasks to completion.

A virtual corporation will be able to react immediately to cultural trends and sudden market changes, adapting to situations by picking up or dropping departmental competencies from collaborating companies. Partners may be separated in many different waysthey may be in separate cities, separate countries, or merely separate buildings, but they must always be accessible through online communication. Videoconferencing can be used if face to face meetings are required, while instant messaging (IM) and smartphone technologies can be used by employees on the move. The level of online communication the corporation has will control how efficiently it will respond to such changes.


There are three different levels in which companies can integrate effective electronic communication in their partnerships, gradually working toward a fully online collaboration:

  • The first level is physical system integration. This is the connection of physical departments and employees within the organization to each other and to the other organizational members of the virtual corporation. This is simple communication and transference of data by employees through online networks such as intranets, the sending and receiving of basic files. If this capability is in place, then this first level has been reached.
  • The second level is application integration, also known as information integration. This level pertains to any applications that the virtual corporation is using to communicate. Now that the physical barrier has been crossed by online capability, the partnering companies move forward into developing particular ways to collaborate. These can include wikis, forums, chat sites, blogs, social networks, IM, audio and video conferencing, and VoIP (voice over Internet Protocol) service. The particular services must be agreed upon by all companies in the virtual corporation and be formatted the same way so that information can be communicated quickly and easily. All employees should be trained in these applications.
  • The third level is business integration, in which the companies are coordinating their efforts into single supply chains, utilizing their specialties to achieve maximum efficiency and quality. At this stage, businesses work together to form better ways of distributing their products or marketing their services, creating new practices through innovation. Although no formal contracts are made between the partners of the virtual organization, this step does bind the companies closer together and makes it less likely that they will separate.


Human resource (HR) departments have a key role to play in establishing virtual corporations. Employees will be representing themselves over online communication instead of face-to-face or phone conversations, and this can lead to certain misunderstandings unless the HR department takes steps to ensure everyone understands proper ways to correspond over the Internet. This is called impression management.

Time and spelling are both good examples. If an employee responds to an electronic message late at night, it may give the impression that the employee is industrious and hard-working. On the other hand, if the employee waits a while before responding to an electronic message, they may appear to be lazy or inattentive, or they may be showing that the message (or the sender) is not important to them. The spelling within the message will show how professional the sender is, along with other more subtle information. An English partner will spell some words differently from an American correspondent, and even within the geographical areas of the United States, different contractions are used to communicate varied meanings. The same can be said of vocabulary.

Managers in charge of impression management have several ways to minimize online misunderstanding. The first is to have a policy of full disclosure: employees should give as much information as they can that involves the current subject, trying to make sure that no gaps are left in what they are trying to communicate. Consistent, complete honesty will help create an atmosphere of confidence between virtual partners, increasing the effectiveness of collaborative efforts.

Problems can also be solved through use of questions and precision. Any doubt in electronic communication should immediately be removed through careful questioning of the exact meaning in the message. Questions can clear up misunderstanding before it even begins. Precise communication will eliminate the need for questionsif an employee reads what she has just written and finds an area of uncertainty, she should add whatever phrases or graphics are needed to create a clear meaning.

In the future, it is expected that video conferencing will become much more common, allowing employees to see each other's dress, hair, facial expressions, and eyes, along with any nonverbal cues the correspondent may be sending. This will make certain parts of virtual communication less prone to error, but impression management training will probably always be needed for purely text communication.


As can be seen by the efforts of impression management, much of the success with virtual corporations lies in trust. The partnering companies must be willing to trust each other both legally and ethically, and this is not always easy. When virtual documents are used, how valid are the e-signatures from a legal perspective? If one of the partners is convicted of wrongdoing or an unethical practice, how culpable are the other partners in the corporation? If one of the partners is unsatisfied with the quality of another partner, how is the problem resolved? Because legal issues regarding virtual corporations are so nebulous, many states in America have made it difficult for such organizations to formally announce their connections. A notable exception is Vermont, which in 2008 passed legislation designed to make it easier for companies to register as fully online corporations, legalizing the authenticity of electronic documents and other such time-and-space hurdles that give virtual organizations their flexibility. It remains to be seen if this legal incorporation of VCs will continue.


Bernard, Alain. Methods and Tools for Effective Knowledge Life-cyle Managment. Springer Publishers, 2008.

Burn, Janice, Peter Marshall, and Martin Barnett. E-Business Strategies for Virtual Organizations. Butterworth-Heinemann, 2001.

Innis, Pauline B., Robert L. Heneman, and David B. Greenberger. Human Resource Management in Virtual Organizations. IAP, 2007.

Legrand, Roland. The Virtual Corporation, possibly a milestone in the collaboration era. Metanomics, 2008. Available from:

Zemlianksy, Pavel, and Kirk St. Amant. Handbook on Research of Virtual Workplaces and the New Nature of Business. Idea Group Inc, 2008.

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