As the possibilities of the information revolution challenge traditional business logic, companies are experimenting with a wide array of strategic alternatives and organizational forms. The appropriateness of the current business model rooted in the industrial economy is questionable. Drucker has outlined his views of a knowledge-based organization. Quinn has documented the shift toward a service-based economy with a focus on intellect. Hamel and Prahalad argue for a critical focus on core competencies and an organizational design that best leverages them. Womack and Jones advocate a lean organization, and Handy paints a shamrock structure.1 We could cite many more opin-ions, but the message is clear: the current models of strategy and structure are woefully inadequate to meet the imminent challenges of the information age.
During the past two years, we undertook a systematic study to conceptualize the architecture of virtual organizing. Here, we present our views on the architecture of the twenty-first century business model. We choose the term architecture rather purposefully and define it as “providing a framework for the conduct of life, not a specification of what life should be. Architecture should facilitate, guide, and provide a context; it should not provide a rigid blueprint for conduct.”2 Moreover, the “building should preferably be ahead of its time when planned so that it will be in keeping with the times as long as it stands.”3
We reject a virtual organization as a distinct structure (like functional, divisional, or matrix). Instead, we treat virtualness as a strategic characteristic applicable to every organization; our discussion then is applicable to century-old companies that manufacture cement, chemicals, and autos as well as to new entrants in the fast-changing high-technology marketplace. We view virtualness as a strategy that reflects three distinct yet interdependent vectors:
- The customer interaction vector (virtual encounter) deals with the new challenges and opportunities for company-to-customer interactions. IT now allows customers to remotely experience products and services, actively participate in dynamic customization, and create mutually reinforcing customer communities.
- The asset configuration vector (virtual sourcing) focuses on firms’ requirements to be virtually integrated in a business network, in sharp contrast to the vertically integrated model of the industrial economy. Firms using the Internet for business-to-business transactions can structure and manage a dynamic portfolio of relationships to assemble and coordinate the required assets for delivering value to customers.
1. P. Drucker, Post-Capitalist Society (Oxford, England: Butterworth Heinemann, 1993);
J.B. Quinn, Intelligent Enterprise (New York: Free Press, 1992); and
G. Hamel and C.K. Prahalad, Competing for the Future (Boston: Harvard Business School Press, 1994).
Womack and Jones coined the term “lean organization” to extend the original concept of lean production. See:
J.P. Womack, D.T. Jones, and D. Roos, The Machine That Changed the World (New York: Rawson Associates, 1990).
C. Handy, The Age of Unreason (Boston: Harvard Business School Press, 1989).
2. See, for instance:
D. Nadler, M. Gerstein, R. Shaw, and associates, Organizational Architecture: Designs for Changing Organizations (San Francisco: Jossey-Bass, 1992).
3. S.E. Rasmussen, Experiencing Architecture (Cambridge, Massachusetts: MIT Press, 1991).
4. Nadler et al. (1992).
5. For an overview of the characteristics of the new marketspace, see:
J.F. Rayport and J. Sviokla, “Managing in the Marketspace,” Harvard Business Review, volume 72, November–December 1994, pp. 141–150.
6. See J. Hagel III and A.G. Armstrong, Net.Gain: Expanding Markets through Virtual Communities (Boston: Harvard Business School Press, 1997).
7. When we refer to customer, we include both customers and end-consumers.
8. N. Negroponte, Being Digital (New York: Alfred A. Knopf, 1995).
9. See, for instance:
J.B. Quinn, J. Baruch, and K.A. Zien, Innovation Explosion (New York: Free Press 1997); see also:
A.J. Slywotsky and D. Morrison, The Profit Zone (New York: Times Business, 1998).
10. C. Baldwin and K. Clark, “Managing in an Age of Modularity,” Harvard Business Review, volume 75, September–October 1997, pp. 84–93.
11. B.J. Pine III, Mass Customization (Boston: Harvard Business School Press, 1993).
12. M. Dell, “The Power of Virtual Integration,” Harvard Business Review, volume 76, March–April 1998, pp. 73–84.
13. Hagel and Armstrong (1997), p. 37.
14. For an overview, see Hagel and Armstrong (1997).
15. In this paper, we use the terms competencies and capabilities interchangeably. The main distinction in our view is that Prahalad and Hamel use the term competencies in their paper more narrowly to refer to technology-based competencies. See:
C.K. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review, volume 68, May–June 1990, pp. 79–91.
For a broader view, see:
G. Stalk, P. Evans, and L.E. Shulman, “Competing on Capabilities: The New Rules of Corporate Strategy,” Harvard Business Review, March–April 1992, pp. 57–69.
We adopt a broader definition when using the two terms interchangeably.
16. W. Davidow and M. Malone, The Virtual Corporation (New York: Harper Collins, 1992).
17. S. Goldman, R. Nagel, and K. Preiss, Agile Competitors and Virtual Organizations (New York:
Van Nostrand Reinhold, 1995).
18. Quinn (1992).
19. See Quinn (1992); and
R. Venkatesan, “Strategic Sourcing: To Make or Not to Make,” Harvard Business Review, volume 70, November–December 1992, pp. 98–107.
20. See, for instance:
J. Lewis, The Connected Corporation (New York: Free Press, 1995);
Quinn (1992); and
B. Gomes-Casseres, The Alliance Revolution (Cambridge: Harvard University Press, 1996).
21. See, for instance:
22. Baldwin and Clark (1997).
23. Negroponte (1995).
24. For more details, see:
H.W. Chesbrough and D.J. Teece, “When Is Virtual Virtuous? Organizing for Innovation,” Harvard Business Review, volume 74, January–February 1996, pp. 65–73.
25. See J. Short and N. Venkatraman, “Beyond Business Process Redesign: Redefining Baxter’s Business Network,” Sloan Management Review, volume 34, Fall 1992, pp. 65–73.
26. G2 Research.
27. See N. Venkatraman, “IT-Enabled Business Transformation: From Automation to Business Scope Redefinition,” Sloan Management Review, volume 35, Winter 1994, pp. 73–87.
28. See A. Brandenburger and B. Nalebuff, Co-opetition (New York: Currency Doubleday, 1996).
29. P. Drucker, “The Coming of the New Organization,” Harvard Business Review, volume 66, January–February 1988, pp. 44–53.
30. See, for instance:
T. Stewart, Intellectual Capital (New York: Currency-Doubleday, 1997).
31. Quinn (1992), p. 102.
32. N. Venkatraman and E. Christiaanse, “Electronic Channels for Expertise Exploitation: An Empirical Test of the Airline-Travel Agency Relationships,” Academy of Management Best Paper Proceedings, 1996.
33. See J.B. Quinn, P. Anderson, and S. Finkelstein, “Managing Professional Intellect: Making the Most of the Best,” Harvard Business Review, volume 74, March–April 1996, pp. 71–80.
34. See T. Davenport and L. Prusak, Working Knowledge: How Organizations Manage What They Know (Boston: Harvard Business School Press, 1998).
35. See D. Bell, D. Bobrow, O. Raiman, and M. Shirley, “Dynamic Documents and Situated Processes: Building on Local Knowledge in Field Service,” in T. Wakayama, S. Kannapn, C.M. Khoong, S. Navathe, and J. Yates, eds., Information and Process Integration in Enterprises: Rethinking Documents (Norwell, Massachusetts: Kluwer Academic Publishers, 1997).
36. Field research at Boston University School of Management, Systems Research Center, 1997.
37. J. Browne, speech, “Science, Technology, and Responsibility” (London: Royal Society, 28 October 1997).
38. J. Wolfensohn, 1996 annual meeting speech. Available at www.worldbank.org/html/extdr/extme/jdwams96.htm.
39. See G.R. Sullivan and M. Harper, Hope Is Not a Method: What Business Leaders Can Learn from the Army (New York: Broadway Books, 1996).
40. Field research at Boston University School of Management, Systems Research Center.
41. Boston University School of Management, research on knowledge management.
42. See M. Amram and N. Kulatilaka, Real Options: Managing Strategic Investments in an Uncertain World (Boston: Harvard Business School Press, 1998); and
N. Kulatilaka and N. Venkatraman, “Are You Preparing to Compete in the New Economy? Use a Real Options Navigator” (Boston: Boston University School of Management, working paper, August 1998).