organization design - building a virtual organization
TRANSCRIPT
Łódź 2011
UNIVERSITY OF LODZ FACULTY OF MANAGEMENT
FIELD OF STUDY: BUSINESS MANAGEMENT
Author: Tomasz Kłosiński Student №: 285856
BACHELOR THESIS
Organization Design: Building a Virtual Organization
Projektowanie Organizacji: Budowanie
Wirtualnej Organizacji
Thesis written in the Department
of Knowledge Management under
the supervision of
Dr Jerzy S. Czarnecki
Table of Contents
Executive summary .................................................................................................................... 5
Introduction ................................................................................................................................ 6
Chapter I ..................................................................................................................................... 7
Organization ........................................................................................................................... 8
Definition of an organization .............................................................................................. 9
Organizational design ........................................................................................................... 11
Definition of an organizational design .............................................................................. 11
Dimensions of organizational design ................................................................................ 12
Virtual Organization .............................................................................................................. 13
Definition of virtual organization ...................................................................................... 13
Design of Virtual Organization .............................................................................................. 15
Formalization .................................................................................................................... 15
Specialization .................................................................................................................... 15
Hierarchy of authority ....................................................................................................... 16
Centralization .................................................................................................................... 16
Professionalism ................................................................................................................. 17
Organizational technology ................................................................................................ 17
Environment ...................................................................................................................... 18
Goals and strategy ............................................................................................................ 18
Culture ............................................................................................................................... 19
Conclusion ......................................................................................................................... 19
Chapter II .................................................................................................................................. 20
Introduction .......................................................................................................................... 21
Overview and history of Reuters .......................................................................................... 21
Organization Design of Reuters ............................................................................................ 22
The Challenge ....................................................................................................................... 27
Chapter III ................................................................................................................................. 28
General Management ........................................................................................................... 29
General Management in Virtual Organization ..................................................................... 30
Conclusion ............................................................................................................................ 33
List of figures ............................................................................................................................ 35
Bibliography .............................................................................................................................. 36
Sources for Chapter II ............................................................................................................... 37
Your future will rest
heavily on your
technical abilities, but
much more on your
managerial abilities.
– Henry Fayol
Executive summary
I know how to build a virtual organization. By the means of organizational design
methodology, I provide in this paper the guide through the process of development of it. At
the end of the paper, I present management method that responds to the challenge of
building a virtual organization.
However, this paper is not to give advices. The reader has to make a conscious choice
himself whether to implement virtual organization or not. I don’t give such advices because I
don’t have such competences – I’m not a management consultant. Nevertheless, if one is
interested in short, substantial and informative vade mecum on virtual organizations, then I
recommend the reader to read this paper.
The paper begins with description of what, than basing on it paper provides description of
how and finally it concludes on why. In other words, first you’ll get know the definitions and
background supporting comprehension of them. Then, paper will explain you the process of
building virtual organization in detail by means of organizational design dimensions. At last,
it summarizes the results you may expect from implementation of this model. Finally, I
provide the description of tool that could be the possible answer to the question put in the
title of this thesis.
Reader, the choice is yours.
Introduction
This thesis is based on two pillars: the virtual organization and organization design. These
two concepts from the field of management can be illustrated as two banks of the river – the
bridge in this case is the subject of the thesis: building a virtual organization by means of
organization design.
The paper is split into three parts. Firstly, it strives to define the theoretical fundamentals of
virtual organization. This part can be called the assumptions part. From assumptions,
another part is derived – the reasoning part. It analyzes the virtual organization in the
framework of organizational design. Lastly, it leads to tools that may support building virtual
organization – the conclusion part.
In the first chapter the concept of organization, organizational design and virtual
organization are introduced – it ends with the projection of virtual organization model on
the organizational design dimensions. Second chapter deals with analysis of Reuters – a real
organization possessing traits of virtuality – in the framework of organizational design. Last
chapter describes the managerial tool that may be used for the challenge of Reuters: how to
preserve and extend the organizational virtuality.
One of the goals of this paper was to give a recipe for the model of virtual organization by
providing its characteristics and discussing influence of its implementation on the ground of
the organizational design. However, this paper limits scope of the analysis to organizational
design and doesn’t discuss information technology (or other topics not related to
organization theory and design) even though it occurs in almost every definition of virtual
organization in literature. In opinion of author of this paper, this approach is fundamentally
wrong because virtual organization is a modal of organization, not a particular
implementation of such model. For example, Julius Reuter used homing-pigeons to establish
his virtual network. In literature authors often mention about electronical dependence as
one of the factors defining virtual organization. Therefore, my question is: how electronical
is homing-pigeon? What was the level of electronical dependence of Reuter’s organization?
In this paper, author decided to discuss communication technology dependence rather than
electronical one.
Another attempt of author was to keep lexical and substantive discipline. The overuse of
evaluative words that are not supported by reasoning but declared as if they were self-
evident is the common problem of the beginner management professionals. This paper
strives to meet the requirements of academic reliability rather than journalistic standards of
tabloids. Every word and every paragraph in this paper is to support the author’s reasoning.
If they are not, then they shouldn’t be here.
Chapter I
Organization
Organizations surround our everyday life. They touch us every day from the very beginning
to the very end. We were born in hospitals, we are educated in schools and universities, we
work in companies, we buy goods and services from other companies, we get pension from
pension funds when we go for retirement, and finally we are buried by funeral homes after
our death. Organizations are necessary for the process of civilization progress and social
development. They are also indispensable to satisfy the needs of society, but they can also
be a force of destruction.
The word organization comes from
Greek word organum – meaning tool,
sense organ, musical instrument or
product of work. Organization,
according to dictionary, means “the
act or process of organizing or being
organized” and was first used in 15th
century.1 Therefore, the concept of
organization has existed for six
centuries. However, modern
organizations are relatively recent in
the history of humankind. They arose
during the Industrial Revolution. It
was a period from the 18th to 19th
century – an era of the development
of large organizations that
transformed society. Therefore,
modern organizations are at most one hundred and fifty years old.2
Early organizations had simple design. However, as they grew their structure became
sophisticated. Management at beginning was hierarchical and order-oriented. It evolved into
complex knowledge and skills set.3
Even though organizations are young beings, they serve society in many ways. Figure 1
indicates seven points underlying the importance of organizations for the society. In
conclusion, organizations are desirable for the society because they transform inputs into
outputs while adapting to changing environment.4
1 Merriam-Webster Dictionary, Merriam-Webster, Springfield, USA, 1994, p. 104 2 R. Daft, Organization Theory and Design, 8th edition, Thomson South Western, 2004, p. 12 3 A. Farazmand, Modern organizations: theory and practice, Greenwood Publishing Group, 2002, p. 14 4 R.Daft, op. cit., p. 12
Figure 1. Importance of organizations
Source: R. Daft, Organization Theory and Design, 8th edition, Thomson South Western, 2004, p. 12
Definition of an organization
“Organizations are social entities that are goal-directed, are designed as deliberately
structured and coordinated activity systems, and
are linked to the external environment”5. This
definition assumes that the organization is
informal being: it is not an office, set of
company’s policies and procedures, entry in the
state’s register of businesses, or company’s
uniforms. In light of this definition organization is
made up of people and their relationship with
one another. Organization is defined by the
human action and interaction of people to
perform functions leading to attaining a goal.6
Organization is a social system maintaining
internal order of material and immaterial
resources that aims at achieving goals. There are
number of factors creating organization. One of the core characteristics are shared values:
ethical code and information culture which are spread among organization’s members.
Organization implements its strategy that
entails specifying its mission, vision and
objectives. Every organization has its formal
structure and procedures (e.g. rewarding
system).7
These definitions talk of organization as having
goals, as if they were an individual person. It
creates an image of agreement amongst
members regarding the purpose of an
organization that might not exist. In defining
organization’s goals there exist a danger of
inadvertently prioritization of particular goals of
certain individuals or groups at the expense of
goals and aspirations of others who are involved
with the same organization.8
5 R. Daft, op. cit., p. 13 6 Ibid., p. 13 7 M. Pańkowska, Rozwój informatyzacji wirtualnej organizacji, Wydawnictwo Akademii Ekonomicznej w Katowicach, Katowice, 2007, p. 15 8 J. McAuley, J. Duberley, P. Johnson, Organization theory: challenges and perspectives, Pearson Education Limited, England, 2007, p. 13
Figure 2. Organization's charactersitics
Source: Own elaboration based on R. Daft, Organization Theory and Design, 8th edition, Thomson South Western, Ohio, 2004, p. 13
Figure 3. Organization as a network of its members
Source: Own elaboration based on J. McAuley, J. Duberley, P.
Johnson, Organization theory: challenges and perspectives,
Pearson Education Limited, England, 2007, p. 13
Virtual organizations are temporary networks of individuals or groups, it implies that each
member of virtual organization has its own goals – what binds its members is business
opportunity. Characteristics of virtual organizations deform the previously listed definitions
of the organization. The application of the lens of contract leads naturally into the
reconceptualization of the organization to a governance structure. Members are described
in more veridical ways in both cognitive and self-interestedness respects.9
Newborn virtual organization is not “deliberately structured system”. Virtual organizations
are shaped by individuals, however they are born spontaneously: individuals or groups
simultaneously contribute efforts to the accomplishment of a common purpose.10 They
resemble spontaneous order – orderly structured system which is the product of the action
of many individuals or groups but is not the result of human design.11
9 O. Williamson, The Theory of the Firm as Governance Structure: From Choice to Contract, The Journal of Economic Perspectives, Vol. 16, No. 3, 2002, pp. 194 10 Ch. Barnard, The functions of the executive, Harvard University Press, USA, 1968, p. 102 11 Ch. Petsoulas, Hayek's liberalism and its origins: his idea of spontaneous order and the Scottish enlightenment, Routledge, 2001, p. 12
Organizational design
Organizational design has stable conditions to grow and
develop in today’s environment full of organizational
challenges like: “global competitiveness, diversity,
ethical concerns, rapid advances in technology, the rise
of e-business, a shift to knowledge and information as
organizations’ most important form of capital, and the
growing expectations of workers for meaningful work
and opportunities for personal and professional
growth”12.
These changes also imply different approach to
organizational design. Managerial paradigm is shifting
from mechanics-oriented systems to biology-oriented
systems. Perceptions towards organizations are
changing and this change has an impact on the patterns
of behavior within organizations.13
Definition of an organizational design
There are two types of organization design definitions:
difference between them reflects two different approaches to the organization. First one is
structure-oriented and reflects the design as a construction of a machine – brings to mind an
engineer; whereas second definition puts the design in wider perspective than structure – it
resembles philosopher analyzing the nature of given need for an organization.
First definition states that organization design is a
system for measuring what has been
accomplished by the people, system for rewarding
them, and procedures for selecting and
developing them, and structure is central to these
aspects.14
Organization design – says another type of
definition – is an application of organization
theory. It is the overall set of structural
12 R. Daft, op. cit., p. 26 13 R. Daft, op. cit., p. 27 14 J. Child, op. cit., p. 3
Figure 4. Organization theory
Source: Own elaboration based on R. Daft, Organisation Theory and Design, 8th edition, Thomson South Western, Ohio, 2004, p. 26
Organization theory is way of thinking about organizations. It is analytical and critical thinking that investigates patterns and regularities in organizational design and behavior. These regularities are defined and measured by organization scholars by means of social research into insights of how organizations function.
Figure 5. Organization design
Source: W. Griffin, Management, Cengage Learning,
Boston, 2006, p. 319
As P. Drucker has put it, “structure is a
means for attaining the objectives and
goals of an institution”.
elements and the relationships among those elements used to manage the total
organization.15
In this paper, second definition is preferred. Organization design is considered to be a
“philosophy of organization” that goal is to draft a general picture of organization. Even
today management consulting companies equate organization design with organization’s
structure.16 However, to design an organization more is needed than analysis of its structure.
Dimensions of organizational design
Dimensions of organizational design are
specific traits describing organizations, similar
to personality and physical traits describing
people or architectural traits describing a
building. There are two types of dimensions:
structural and contextual. In sum there are
eleven independent dimensions. Dimensions
are tool for measurement and analysis of
characteristics of an organization.17
The relations between contextual and
structural dimensions are shown in the
Figure 6. Internal traits of an organization
are defined by means of structural
dimensions. They constitute a basis for
measurement and comparison of
organizations. Contextual dimensions define
the organizational framework that shapes
the structural dimensions. These two
dimensions can be pictured as platform of
overlapping elements that form a base for
organization’s structure and work processes, which are described by structural dimensions.18
15 W. Griffin, Management, Cengage Learning, Boston, 2006, p. 319 16 J. Karren, Key principles of principles of organization design: diagnosing issues in a company’s structure, Point of view, January 2009, <http://www.pwc.com/en_us/us/people-management/assets/key-principles-organization-design.pdf, 2011-10-03> 17 R.L. Daft, op. cit., p. 17 18 R.L. Daft, op. cit., p. 18
Figure 6. Organization design
Source: Own elaboration based on R. Daft, Organization Theory and Design, 8th edition, Thomson South Western, Ohio, 2004, p. 17
Figure 7. List of organization design dimensions
Source: Own elaboration based on R. Daft, Organisation Theory and Design, 8th edition, Thomson South Western, Ohio, 2004, p. 17
Virtual Organization
A concept of virtual organization was introduced as a form of cooperative network in late
80’. Since the concept is young, academics have introduced different concepts and terms to
define this form of organization. Scholars used terms like virtual company, virtual enterprise,
and virtual factory for last 30 years.19
Despite the lack of consensus on the theoretical description of this phenomenon, virtuality
in business is a fact. A study conducted by Gartner Group indicates that more than 60% of
professional employees work in teams characterized by virtuality.20
Definition of virtual organization
A Latin word virtus means proficiency,
manliness. It defines an attribute of an
object which does not exist but have the
possibility to exist. This term reflects the
nature of virtual organization.21
Virtual organization is a network of
partnerships enabled by information and
communication technology. As indicated
in the Figure 8, there are two types of
virtual organizations: intra-organizational
and inter-organizational, whereby the
first refers to organization with defined
boundaries, second pertain to exchange
of resources between organizations.
Inter-organizational virtual organization can be divided into virtual markets, which refers to
e-commerce market transactions using information and communication technology, and
virtual corporation, which is about partnership network of independent companies.22
In this paper virtual organization is limited to inter-organizational structure – i.e. as a
temporary network of independent companies-suppliers, customer, and even rivals – it is a
product of opportunity and once the opportunity has been met, the venture disbands. Its
19 U. Franke, The Competence-Based View on the Management of Virtual Web Organizations. In U. Franke, Managing Virtual Web Organizations in the 21st Century: Issues and Challenges, UK, 2001, p. 2 20 T. Stanko, C. Gibson, The role of cultural elements in virtual teams. In R. Bhagat, R. Steers (ed), Cambridge Handbook of Culture, Organizations, and Work, Cambridge University Press, Cambridge, 2009, p. 272 21 Merriam-Webster Dictionary, Merriam-Webster, Springfield, USA, 1994, p. 153 22 U. Franke, op. cit., p. 2
Figure 8. Virtual organization classification
Source: Own elaboration based on U. Franke, The Competence-
Based View on the Management of Virtual Web Organizations. In
U. Franke, Managing Virtual Web Organizations in the 21st
Century: Issues and Challenges, UK, 2001, p. 12
temporality implies flexibility and fluidness. Model also assumes that each member of virtual
organization tends to provide core competences.23
Virtual organization’s backbone, enabling the
communication, sharing skills and costs, and
access to one another’s market, is information
technology. Information technology services
providing virtuality are tools for remote
communication – in the Middle Ages it was
homing-pigeon, in the XIX century it was
telegraph, today these are computer
networks – which enable organization’s
members to work in real time.24
Among factors of virtuallity defining virtual
organization used in literature four are the
most common:
Structural dynamism – measuring
change among members, their roles,
and relationships to each other, occurs
frequently;
Geographic dispersion – indicating the
level of spread across more than one
location of the virtual organization members;
Electronic dependence – measuring communication and collaboration IT tools such as
e-mail or instant messaging;
National (or cultural) diversity – refers to refers to team which consists of members
with more than one national or cultural background.25
However, the only defining factor is dynamic structure – rest of them is commonly meet in
real virtual organizations but they are optional. Virtual team members can be separated by
many kilometers or even continents but they may also be situated in different buildings
across the city or adjacent offices in the same facility.26 Analogous situation is with
electronical dependence and national diversity – members can use Internet or messenger on
horseback to communicate remotely, they can be from different countries but they can be
also from the same.
23 U. Franke, op. cit., p. 2 24 D. Pauleen, Virtual teams: project, protocols and processes, Idea Group Publishing, London, UK, 2004, p. 12 25 T. Stanko, C. Gibson, op. cit., p. 272 26 D. Pauleen, op. cit., p. 13
Figure 9. Skills of virtual team
Source: D. Pauleen, Virtual teams: project, protocols and
processes, Idea Group Publishing, London, UK, 2004, p. 12
Design of Virtual Organization
Application of the design that provides the
organization attributes of virtuality must
be a conscious choice. It is a strategic
option for a company. Design should be
preceded by analysis of organization’s and
its customer’s needs. The level and model
of virtuality has to be applied also after
consideration of organization’s needs.27
One of the methods that can be used for
designing the organization is the
methodology of organizational design with
its structural and contextual dimensions.
The purpose of this analysis is to provide
the patterns enabling building virtual
organization. One has to be aware of
conditions in which virtual organization
has advantage over different models.
In this analysis, personnel ratios and size dimensions of organization design are omitted. The
model of virtual organization, as it was described in previous section of this chapter, is not
covering the matter of size and personnel of it. Thus they are assumed to be any.
Formalization
Coordination of internal processes requires high level of trust among its members. Internal
control is maintained through common norms and values, and self-control.28 Thus, the
written documentation in the organization should be rather replaced by trust, cooperation
and empowerment.
Specialization
Specialization of virtual organization members is heterogeneous – it represents various
differential profiles of range of its resources and competences.29 There are two different
divisions of labors: vertical and horizontal. First one, called “industrial division of labor”, can
be exemplified by a factory’s manager dividing the process of production into various partial
operations and assigning them to the workers. Horizontal division of labor, called by “social
27 M. Warner, M. Witzel, Zarządzanie organizacją wirtualną, Oficyna Ekonomiczna, Kraków, 2005, p. 16 28 M. Najda-Janoszka, Organizacja wirtualna: teoria i praktyka, Difin, Warszawa, 2010, p. 50 29 M. Najda-Janoszka, op. cit., p. 50
Figure 10. Organization design dimensions of virtual organization
Source: Own elaboration based on M. Warner, M. Witzel,
Zarządzanie organizacją wirtualną, Oficyna Ekonomiczna, Kraków,
2005, p. 16
division of labor”, is an interaction of independent units by the means of market mechanism
(e.g. exchange between factories to produce given good).30 The different operations are
here independent and are not submitted to the control of a central authority charged with
the coordination of the actions of each individual segment of the total system with all the
others. Virtual organization is shaped on basis of integrated client-oriented processes
consisting of relatively small but steerable units (modules). Those modules dispose
decentralized competences to make decisions and proportional range of responsibilities.
Therefore, organization to become virtual should strengthen horizontal and weaken vertical
division of labor.31
Work in should be less specialized and less function-oriented than work in non-virtual
environment. Employees, instead of focusing on one task, have to play role in many tasks or
even deal with whole project in all its dimensions.32 Employees should be trained in
entrepreneurship and self-management, and they are expected to possess wide range of
skills.
Hierarchy of authority
To achieve the virtuality, there should be no dominant positions and highly subordinated
relationships in organization.33 Members of organization should have an opportunity to
adapt to changing conditions of environment. Organizations cannot rely on direct control
and coordination, but need to bind the nodes through shared values and norms.34 Work in
virtual organization supposed to be done in teams.35
Centralization
To build virtuality, decisions should be made in collaboration of organization’s network
members.36 For this purpose there could be made decision-making meetings in which issues
would be discussed.37 Much of the responsibility for functional management has to be
transferred to employees on lower levels of the organizational hierarchy. In order to gain the
advantage of being virtual, hierarchization of decision-making process in organization should
be lowered.38
30 W. Röpke, Economics of The Free Society, Henry Regnery Company, Chicago, 1963, p. 44 31 M. Najda-Janoszka, op. cit., p. 50 32 M. Warner, M. Witzel, op. cit., p.73 33 M. Najda-Janoszka, op. cit., p. 50 34 L. Yan, op. cit., p. 35 M. Warner, M. Witzel, op. cit., p.73 36 M. Fongoman, E-collaborations and virtual organizations, Idea Group Inc (IGI), London, 2005, p. 130 37 D. Duarte, N. Snyder, Mastering virtual teams: strategies, tools, and techniques that succeed, John Wiley and Sons, San Francisco, 2006, p. 168 38 M. Warner, M. Witzel, op. cit., p. 175
Professionalism
Work in virtual organization is more managerial-oriented than non-virtual work. Employee
has to become his own manager – he should coordinate his own tasks. Moreover,
employees, distant from each other, have to organize their time and workshop: they should
decide how and when to perform the task and they should set themselves achievement
standards and rules.39
Management of virtual organization should be less administrative and more leadership-
oriented way. Managers have to be able to think about organization and its goals in wider
categories. In virtual organization it is necessary to switch from functional management to
philosophical, more holistic point of view – general management. Management should be
treated as one indivisible object, and not as a set of functions: marketing, finance,
manufacturing, human resource, etc., whose mutual associations are not paying any
attention. It should be a greater use than hitherto of the achievements of disciplines outside
the traditional sphere of interests of management, psychology, sociology, philosophy,
history - in order to broaden the mental horizons of managers and in equip them with tools
to analyze problems and find solutions.40
Managers of virtual organizations should be educated in management of network-structured
company, human resource management in virtual environment, personal communication,
generating knowledge, knowledge management, and assessment and valuation. One of main
virtual skills for managers should be estimation of valuation of intangible assets like
organizational and human capital.41
Organizational technology
Organizational technology enabling
communication in virtual organization is a
supportive tool for the model – but it is not
an addition to the model, it is conditio sine
qua non, it is a necessary binding element
for the model. Nevertheless, virtual
organization may be defined without
information and communication
technologies. Virtual organization model
can be applied with Venkatraman’s and
Henderson’s strategic alignment model that
39 M. Warner, M. Witzel, op. cit., p. 73 40 M. Warner, M. Witzel, op. cit., p. 175 41 M. Warner, M. Witzel, op. cit., p. 177
Figure 11. Communication technology
Source: K. Lojeski, R. Reilly, Uniting the Virtual Workforce:
Transforming Leadership and Innovation in the Globally
Integrated Enterprise, John Wiley and Sons, 2008, p. 162
illustrates separateness of business and IT strategy but their relation implies a need of
adjustment of them to work together.42
To build a communication infrastructure that will provide features of virtuality, two factors
have to be analyzed: social presence and media richness. Social presence is the extent to
which a communication medium supports a feeling of presence and a sense that those
involved are jointly interacting. Richness of media is related to ability of using natural
language rather than symbolic information, number of paralinguistic cues such as voice,
facial expressions, and gestures, personalization of information, and rapidness of feedback.43
The level of subjection of communication technology depends on geographical dispersion.
However, to build the virtual organization it is necessary to adjust communication
infrastructure to the specific requirements of virtuality.
Environment
To achieve virtuality, organization has to minimize and weaken its internal and external
boundaries. This is required to provide the ease of reconfiguration and externalization of
functions. Such solution offers the chance to concentrate on the business core.44
Organization should strive to transform into a partnership network of autonomous entities
and pertain to exchange of resources between entities. Being open to environment is
defining characteristic of organizational virtuality.45
Goals and strategy
Market opportunity, as a source of virtual organization, defines its purpose and thus shapes
its goals and strategy. Opportunities are creating value stimulate processes of design and
implementation of specific organizational solutions in virtual space. Consequently,
organization to gain virtuality attributes has to stimulate building value processes.
Identification of appearing business opportunity is a challenge for the enterprise in aspect of
motivations and abilities to create particular value. There is no perfectly competitive
enterprise that has core competences in all areas of functioning. Every business organization
operates functions in a given network of cooperation and competition interrelations.
However, organization to become virtual should focus on core areas on its functioning. 46
42 A. Sankowska, Organizacja wirtualna, Wydawnictwa Akademickie i Profesjonalne, Warsaw, 2009, p. 72 43 K. Lojeski, R. Reilly, Uniting the Virtual Workforce: Transforming Leadership and Innovation in the Globally Integrated Enterprise, John Wiley and Sons, 2008, p. 162 44 M. Warner, M. Witzel, op. cit., 2004, p. 21 45 U. Franke, op. cit., p. 2 46 M.Najda-Janoszka, op. cit., p. 57
Culture
Diversity and mobility of virtual organization members hinder building organizational
identity and development of organizational culture – common behaviors, values and norms.
Virtual organization’s temporality precludes creation of patterns of effective work because
organizational culture is a result of long-term learning of problems of environment and
internal coordination.47 Culture dimension of organizational design projected on virtual
organization raises challenges with national and cultural diversity48, organizational identity49,
trust and commitment50. As analysis of virtual organization shows main problem of designing
and managing the virtual organization is cultural congruence of its members.51 Therefore, to
apply the design of virtual organization, much attention has to be paid to organizational
culture.
Conclusion
As a result of application of virtual design, organization uses less written documentation and
its operation is less function-oriented than in other models. Hierarchy of virtual organization
is flat – there are no dominant positions and decision-making process depends on consensus
of its members. Virtual organization requires high level of professionalism; in particular,
employees adopt managerial and specific virtual skills. Organization technology enabling
communication is a necessary element of the model – however, it shouldn’t be confused
with information technology that is only one of possible implementations of communication
infrastructure. Virtual organization is characterized by fluid and flexible internal and external
boundaries. Goals and strategy of virtual organization is shaped by the business opportunity.
Culture of virtual organization is heavily trust-dependent and results in diverse environment.
47 M. Brzozowski, Organizacja wirtualna, Polskie Wydawnictwo Ekonomiczne, Warsaw, 1992, p. 161 48 Ibid., p. 274 49 L. Yan, op. cit., p. 43 50 T. Stanko, C. Gibson, op. cit., p. 276 51 Ibid., p. 275
Chapter II
Introduction
Inter-organizational virtual organization is a network of companies. Set of
contracts between Reuters and its contractors, suppliers and customers
resembles a network that may be called a virtual organization. Model described
in previous chapter assumes that virtual organization is a network of
autonomous entities and traits of virtuality are supported by technology
enabling distanced communication.
Overview and history of Reuters
Reuters Group Limited (informally Reuters) is a global news agency. It
headquartered in London. Currently its owner is Thomson Reuters. Until its
merger with The Thomson Corporation
in 2008, Reuters constituted part of
Reuters Group PLC, which provided
financial market data, with news
reporting comprising less than 10% of
the company's income. All of Thomson
Reuters’s financial market data activities
have now been combined into a single
Markets Division, of which the Reuters
news agency forms a part.
In 40’s of XIX century telegraph was
dominant communication technology –
it enabled communication on distance
of whole Europe first and later through Atlantic Ocean as well. Thanks to this
great device communication process shortened from days to minutes.
In 1848 Paris-located publisher Charles Havas established an experimental news
agency that aimed in providing foreign newspapers detailed information about
revolution that broke in this year. Unfortunately Havas’s venture failed – he
wasn’t able to gain profits on it. Thus, he left it, but one of his employees,
Company
overview
Company
history
Figure 12. Reuters: Company Profile Source: http://thomsonreuters.com/about/
German emigrant Paul Julius Reuter, saw the possibility of earning money on
selling the collected and transmitted through telegraph financial market news.
Reuter started with opening small office in Aachen in Kingdom of Prussia, where
he achieved moderate success. In October 1851 he moved to London as soon as
the telegraph cable was routed under the English Channel and London was
connected to constantly developing continental telegraph network. First
Reuter’s client was London Stock Exchange – he was providing information from
other European stock exchanges to it. On the list of his clients soon appeared
many brokerage houses in London and continental Europe. In Reuter’s system
no one was privileged. Everyone used the same network managed from office in
London, to which information flowed from agents working around the Europe.
All clients got the same news at the same time. Rapid development of this
service entailed increase of Reuter’s offer to political news. Soon Reuter signed
contracts with “The Times” and other major London newspapers and later with
smaller British local newspapers, and finally the newspapers and magazines
around the continental Europe.
During the French-Austrian war of 1859 Reuter’s war correspondents provided
information straight from the battlefield. Within hours they were relating by
telegram to anywhere in Europe, and the next day information appeared in the
newspapers. Sensation that it caused is comparable to sensation that caused
live satellite television transmission from Gulf War in 1990-1991. The possibility
of rapid and accurate transmission of messages along and across the continent
has built a reputation of Reuter and has led to creation of an entirely new
industry.
Organization Design of Reuters
The operation of a communication network, which was invented by Reuter, was
the starting point for the development of contemporary global media empires.
Reuter has shown that it can broaden the scope of activities, using technology
by creating a virtual space.
Reuter’s agency wasn’t – and still is not – centralized organization. Firm has
character of network consisting of nodes and connections among them with a
center in headquarters in London. Subsequent news agencies used new
technologies – radio, television, and satellite communication, Internet – to
undermine position of Reuters as World leader in information providing. It
should be noted, however, that they use the same model that Paul Julius Reuter
developed: distributed actions to obtain information and then distributing them
to customers through a network.
Organization
design model
Virtual organization requires high level of trust rather than formal written
documentation and Reuters’s virtual organization is not an exception. In 1941,
in the midst of World War II, Reuters set up Trust Principles in cooperation with
the Reuters shareholders and the Newspaper Publishers Association. Reuters
and its employees declared to act with integrity, independence and freedom
from bias in accomplishing the difficult and delicate tasks that they faced.
Reuters Directors and shareholders decided to preserve and maintain the Trust
Principles when Reuters became a publicly traded company on the London
Stock Exchange and Nasdaq. Reuters formed a new company named 'Reuters
Founders Share Company Limited' to achieve this. Thomson Reuters requires
from both directors and employees, in performing their duties, have due regard
to Trust Principles, by the proper exercise of their powers and in accordance
with their other duties.
In 1984 when Reuters became a public company, Thomson Reuters Founders
Share Company was funded. The Thomson Reuters Founders Share Company
ensures that the Trust Principles are observed. Thomson Reuters Founders
Share Company consists of experienced and eminent professionals in politics,
diplomacy, journalism, public service and business.
Reuters doesn’t base its internal and external communication on written
documentation. Level of trust between Reuters, its cooperators, suppliers and
customers is crucial element of Reuters’s business. Reuters’s method to
maintain relationships between actors of virtual organization is to establish
The Trust
Principles
Formalization
Figure 13. Reuters Trust Principles
norms and values that will be shared among it. The self-control of its employees
is the main method of maintaining reliance of information that Reuters sells.
The company’s virtual organization members have heterogeneous specialization
– they represent various differential profiles of range of its resources and
competences. There exist various levels of horizontal division of labor among in
Reuters’s virtual organization. Between Reuters and its customers and suppliers
there is relation based on market transaction – which is the most horizontal
specialization and guarantees the biggest level of autonomy of the entities.
Despite of the Reuters’s market operation there are also relations with
Reuters’s outsourcing companies and inside Reuters – among its employees.
Work in Reuters is less specialized and less function-oriented than work in other
companies. Employees, instead of focusing on one task, play role in many tasks
or even deal with whole project in all its dimensions. On the other hand, each
core competence is maintained by particular organization or individual.
Reuters provides itself a tool to gain a competitive advantage by making use of
its intelligent information collected from the businesses and professionals
around the world. Intelligent information provides decision-makers with the
knowledge to act. It is a synthesis of human intelligence, industry expertise and
innovative technology. The company consists of 55,000 employees. It is
operating in more than 100 countries. Reuters delivers information about
financial, legal, tax and accounting, healthcare, science and media markets. The
company is organized into two divisions: Market Division including: Sales &
Trading, Enterprise, Investment & Advisory, Media and Professional Division
including: Legal, Healthcare & Science, Tax & Accounting.
Reuters’s traits of virtuality guarantee its adaptability to changing environment.
Its virtuality enables flexibility and fluidness of relationship with other entities.
However, its network can’t be controlled directly. The binding glue of Reuters
and its contractors is the business opportunity.
Coordination can be achieved only via shared norms and values, and via high
level of self-control. Reuters’s business is founded on integrity, independence
and freedom from bias. Values that are foundation of the Trust Principles and
Code of Business Conduct and Ethics, reflect Reuters way of doing business.
There exists an anonymous helpline for employees for reporting Code-related
issues. Every employee including management is obliged to get familiar with
these corporate documents.
Decision-making process of Reuters’s virtual organization is maintained in
collaboration with other members. Each step towards is discussed among
network nodes – depending which part of the network particular action will
Specialization
Hierarchy of
authority
Centralization
involve. Functional management (such as HRM, Finance, IT, Marketing) is
maintained by employees on the level of teams.
Thomson Reuters’s adapts a group-wide perspective towards management.
However, it also seeks to enable the internal divisions’ fluidness and flexibility.
Combination of these two methods allows the company to serve their
customers effectively. Reuters's management concentrates on strategy and
capital allocation, technology and innovation, talent management and brand
management. Managers are also responsible for supervision of communications,
investor relations, tax, accounting, finance, treasury and legal, and take care of
human resources services, such as employee compensation, benefits
administration, share plans and training and development.
Reuters’s employees coordinate their own tasks. Most of employees are distant
from each other – thus, they have to organize their time and workshop. They
decide how and when to perform the task and they set themselves achievement
standards and rules.
Reuters employs 26,500 people in Professional division and 28,800 in Markets
division. Employees are highly trained in their areas of specialization and in
teamwork and management skills.
Reuters’s technology supports its model of strategy. Technology enables social
presence on high level – its communication medium supports a feeling of
presence and a sense that those involved are jointly interacting. It's necessary
for company operating across more than 100 countries having more than 55,000
employees doing their work in virtual teams. Technology in Reuters provides
richness of media that is ability of using natural language such as voice, facial
expressions, and gestures, personalization of information, and rapidness of
feedback.
Reuters has made significant investments in its technology. 89% of its total
expenses in 2010 are investments in technology capital. Reuters believes that
demand for its products and services will increase since the group of
professionals is growing. Its aim is to constantly improve the technology
infrastructure to satisfy this demand at a desirable cost.
Reuters combines its technology with its content resources to provide services
based on intelligent information for business and professional customers. The
company maximizes the value of its information resources by means of
technology. It continuously is improving its algorithms, search capabilities, user
interfaces, workflow, collaboration tools and data.
Professionalism
Organizational
technology
Environment
Reuters is continuing to develop its platforms for information providing through
the use of technology. The company combines its web services content to
reduce product costs of delivery and to reduce time for development of
products and services. Reuters for most of its products and services uses
multiple software applications based on common database. This approach lets
Reuters to provide products fast into markets.
Reuters has got fluid internal – and to some extend external – boundaries. It can
be reconfigured quickly, while externalizing of many functions offers the chance
to concentrate on the business core.
In 2008, Thomson acquired Reuters for $16 billion. Various tactical acquisitions
were made by Reuters to complement portfolio of services and to strengthen its
business position. Number of acquisitions was made to broaden the range of
offerings. Acquisitions enabled Reuters to integrate Information resources and
services into its operations. They enabled also the company to enter new
markets, get new revenue streams and lower the costs.
Additionally, Reuters continuing strategy to optimize its portfolio of acquisitions
ensures that investments in its business provide opportunities of returns and
continual growth. If it is not the case, number of businesses is sold to pursue
flexibility.
Reuters provides their services to most of their customers with a unique
business model. Most of revenues come from providing content and services on
subscription basis to business and professionals across the world. This business
model is capital efficient, generates cash flow, and it has enabled Reuters to
achieve economy of scale in chosen markets. This enables Reuters to
understand its clients’ needs.
Reuters as a base of its virtual organization was able to build a stable
organizational identity and develop its organizational culture – common
behaviors, values and norms. Even though, Reuters is also subject of typical
challenges of virtuality that rises from national and cultural diversity,
organizational identity, trust and commitment.
All Reuters’s employees, directors and officers, including CEO, CFO and
Controller, are expected to adhere to the Code of Business Conduct and Ethics.
Reuters’s employees are required to acknowledge that they read the Code.
Employees are obliged to act with accordance to principles and policies of the
Code. Ethical business conduct is maintained by establishing culture promoting
values outlined in the Code. Reuters has established an online course in order to
Environment
Goals and
Strategy
Culture
train its employees in the Code. The General Counsel submits an annual report
on the Code to the Corporate Governance Committee.
The Challenge
Reuters constantly has moved from virtual organization to traditional
hierarchical and static organization while it grew. Organizational design
dimensions design analysis of Reuters shows that this company is moving away
from virtual organization model. It can be easily observed that Reuters was born
as inter-organizational virtual organization and constantly has shifted from
network-oriented structure to intra-organizational entity. This trend leads to
more formalized and centralized organization with stronger boundaries. It may
not affect organizational technology, strategy or culture but it will have a major
impact on specialization, professionalization and relationships with
environment. This transformation may lead to advantages but there is no doubt
that it will result also in problems.
Reuter’s
challenge
Chapter III
General Management
Firstly, to obey misunderstandings, the meaning of expression “general manager” has to be
clarified. “General manager” can be understood either as top-level manager or as
nonfunctional manager.52 In this paper, the second meaning is adopted.
In recent years, there can be
observed increased interest in
general management, which is
caused by the emergence of
indeterminate, decentralized
organizational forms, such as
virtual organization. These
forms are characterized by a
fluid structure, less numerous
boards and more dispersed
operating units. When the number of managers is reduced, the need of functional
specialization is minimized, and consequently the possibility of its practice reduced. In this
situation, managers should become general specialists – both in theory and in practice. They
ought to demonstrate the ability to constantly move from one job to another, and even
perform multiple tasks simultaneously. There is great demand for managers who are able to
holistically look at the organization and
analyze it with multi-function models.53
General management is to organizes, plans,
leads and coordinates interrelated
operations. Its aim is to achieve defined
objectives. Planning is the decision-making
process establishing organization’s goals and
means of achieving them. Planning requires
the measurement of changes and
constraints. Among its tools there are
forecasting, developing objectives, strategies
and policies, and forming action plans.
Organizing is the art of coordinating the
activities of individuals. It uses such methods
as managing activities and responsibilities,
providing means of communication,
52 BusinessDictionary.com, <http://www.businessdictionary.com/definition/general-manager.html, 2011-10-04> 53 W. Warner, op. cit., 127
Figure 14. General Management techniques
Source: Own elaboration based on M. Armstrong, A
Handbook of Management Techniques, Kogan Page
Limited, UK, 2001, p. 11
Figure 15. General Management as a result of application of Virtual Organization
Source: Own elaboration based on W. Warner, op. cit., 127
supervision and coordination. Directing is supporting employees in their work activities by
means of leadership and team-work. Controlling is based on measurement and comparison
of results. It is also to monitor results with plans. Feedback is continuous process that
establishes the framework of general management. It is a necessary communication tool
allowing the coordination.54
General management is a set of managerial techniques that are aimed to assist in the
process of decision-making. However, they are to support, not supplant, the exercise of
business judgment.55
General management is a business function that differs from the other functions in the
sense that it does not exist as an independent department in the business. General manager
techniques are aimed at tasks of leading which are performed at all levels of management
and which consist of four basic management functions: planning, organizing, activating and
controlling, and six additional management functions: decision-making, communication,
motivation, co-ordination, delegation and disciplining.56
Regardless of the organizational structure implemented, the general manager at any level of
the organization must supervise the heads of functional departments he or she oversees and
manage and coordinate activates that require cross-functional cooperation. There is a
tendency for functional units to become isolated and parochial silos as they focus on
internal, departmental activities, goals, and measures. General Managers must encourage
and devise means for collaboration among the functional heads. Furthermore, general
managers must work to develop a culture in which functional managers do not lose sight of
finding the solutions and approaches that most benefit the organization as a whole rather
than those that promote their own functions at a cost.57
General Management in Virtual Organization
In comparison traits of virtual organization with traits of general management, it occurs that
there exist many parallels between them. In both models a holistic, wide perspective on
organization and its environment is taken. They prefer to determine strategy rather than ad
hoc task and process management. Both are focused on coordination rather than control –
which results from believe that success is rooted in human factor rather than hierarchy or
organizational structure. Coordination relies on communication in both models. Both,
54 M. Armstrong, A Handbook of Management Techniques, Kogan Page Limited, UK, 2001, p. 11 55 M. Armstrong, op. cit., p. 13 56 J. Kroon, General Management, Kagiso Tertiary, Cape Town, 1990, p. 4 57 J. Colley, Principles of general management: the art and science of getting results across organizational boundaries, Yale University Press, USA, 2007, p. 31
general management and virtual organization, concentrate their attention on knowledge –
especially on process of gathering knowledge.58
General Manager in virtual
organization is responsible for
management above functional
divisions and for coordination of
variety of tasks for a specific
purpose. While in traditional
organization such managers are met
only on highest positions of
organizational hierarchy, in virtual
organization they are majority of
managers. ICT and finance
specialists are supportive for
General Managers. However only
General Managers are to plan,
organize, formulate goals and
manage virtual organization.59
Managers in virtual organization occupy the positions of having a wider scope of
responsibility. Responsibility in virtual organization is passed down. From personnel working
in virtual environment it is expected more responsibility for executed tasks – e.g. planning or
quality control. It leads to empowerment – employees have bigger freedom to achieve
organization’s goals. In virtual organization often they also contribute to determination
those goals. Task that used to be assigned to particular function, in virtual organization are
assigned to serial employee. This process gives managers an opportunity to focus on general
management.60
Virtual general managers also have smaller number of subordinates. It results from the fact
that general management is related to intangible capital that doesn’t need many employees.
Additionally, even in large headquarters employing big personnel, it is organized in teams
rather than in hierarchical departments. In opposition to formal hierarchy that multiplies the
number of subordinates in a manner typical of any bureaucracy; virtual organization has a
tendency to multiply the cooperation of employees with the same powers and competence.
The company that takes the form of a virtual organization, in order to maintain the current
level of human capital usually needs the same as before the number of managers. Moreover,
not working in isolated departments, managers represent the same general point of view on
58 M. Warner, M. Witzel, op. cit., p. 136 59 M. Warner, M. Witzel, op. cit., p. 169 60 M. Warner, M. Witzel, op. cit., p. 183
Figure 16. Common features of General Management and Virtual Organization
Source: Own elaboration based on M. Warner, M. Witzel, Zarządzanie
organizacją wirtualną, Oficyna Ekonomiczna, Kraków, 2005, p. 136
management. If this state is reached, then the creation and transformation of project teams
do not cause major problems.61
Manager of the virtual organization, as well as general manager, is a leader. Role of the
manager is to lead its members to achieve the organization’s objectives. Leadership
encompasses the process of
motivating the workforce, and
establishing, improving and
maintaining a performance-
oriented, feedback-oriented,
supportive culture. General
manager in virtual organization
acts as a cheerleader – he praises
good efforts and motivate
employees to perform and
improve. Setting standards of
integrity is another significant role
of a leader in virtual organization.
An import role of general manager
in virtual organization in
leadership process is to build and
ensure positive, trusting
relationship among all teams,
layers and departments of the
organization, and moreover
beyond the organization
boundaries – that is even more
important because of network
structure and high level of
autonomy of elements of virtual
organization.62
Major difference between manager of virtual organization and other managers is that,
virtual manager focuses on organization objectives, not functional objectives. This shift of
paradigm covers with general management. General manager is expected to translate
functional goals into terms that bear directly on the organization’s goals. Figure 16
61 M. Warner, M. Witzel, op. cit., p. 184 62 J. Colley, op. cit., p. 43
Figure 17. General manager’s obligations
Source: R. Sloma, No-Nonsense Management: A General Manager's Primer,
Macmillian Publishing, New York, USA, 1997, p. 10
summarizes the expectations of general manager’s attitude towards organization that
general management method requires.63
As Figure 17 demonstrates, need for general management results from analysis of virtual
organization by means of organizational design methodology. Virtual organization has fluid
internal and external boundaries. It can be reconfigured quickly and externalize many
functions. It concentrates on the business core. Therefore, general management is a
management method that directly responds to these demands because general manager is a
person who makes it his own business to get to know how business operates beyond
boundaries of team, division, department or even the organization itself.64
Conclusion
General management is a tool that – in opinion of author of this text – responds to Reuters’s
(and most of other virtual organizations’) challenges. Growth and evolution of Reuters leads
this company’s virtual organization, in particular its network of relationships, to
concentration into hierarchical and static organization. In other words, it loses its
characteristics of virtuality. Reuters since its spontaneous creation – even despite of its
virtual characteristics that it still poses – evolved and still evolves into functional
organization that is not focusing on business core anymore. This trend raises some problems
that could be obeyed if Reuters’s decision-makers would apply general management to
support the process of reimplementation of the model of virtual organization.
63 R. Sloma, No-Nonsense Management: A General Manager's Primer, Macmillian Publishing, New York, USA, 1997, p. 10 64 R. Waite, The Lost Art of General Management, Faye Klein, USA, 2004, p.3
Figure 18. Relationship of General Management with Organizational Design and Virtual Organization
Source: Own elaboration.
However, this paper is not to give an advice whether to decide to switch to this model or not
– its aim is to be guide through the particular organization model by means of organization
theory; this paper’s assumptions, reasoning and conclusions are directed to practitioners
and theorists of organization design to outline the impact of application of the design of
virtual organization. This paper was written also to visualize this theoretical problem by
analysis of real organization. Finally, this paper is to show method that can answer questions
arisen by this problem – the challenge.
List of figures
Figure 1. Importance of organizations ....................................................................................... 8
Figure 2. Organization's charactersitics ..................................................................................... 9
Figure 3. Organization as a network of its members ................................................................. 9
Figure 4. Organization theory .................................................................................................. 11
Figure 5. Organization design ................................................................................................... 11
Figure 6. Organization design ................................................................................................... 12
Figure 7. List of organization design dimensions ..................................................................... 12
Figure 8. Virtual organization classification ............................................................................. 13
Figure 9. Skills of virtual team .................................................................................................. 14
Figure 10. Organization design dimensions of virtual organization ........................................ 15
Figure 11. Communication technology .................................................................................... 17
Figure 12. Reuters: Company Profile........................................................................................ 21
Figure 13. Reuters Trust Principles........................................................................................... 23
Figure 14. General Management techniques........................................................................... 29
Figure 15. General Management as a result of application of Virtual Organization ............... 29
Figure 16. Common features of General Management and Virtual Organization .................. 31
Figure 17. General manager’s obligations ............................................................................... 32
Figure 18. Relationship of General Management with Organizational Design and Virtual
Organization ..................................................................................................................... 33
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