Virtual organisations: The shift to ‘virtuality’

One of the major lessons from the credit crunch will be the need for organisations to shift to ‘virtuality’: it has exposed the flaws in the financial underpinning of economies, the ghosts of money that were propping up growth, but also something that is fundamentally limiting about the nature of organisations in the modern world.

Throughout history, the basic form and nature of businesses has changed in response to their environment, and technology in particular. The first limited liability companies, for example, came into being as a direct response to the opening up of overseas trade routes, through shipping and the railways. The levels of risks presented by exploration and merchant ventures internationally were too much for individual entrepreneurs. A model of operations had to be found that could accommodate such a shift in the rules of how business was conducted and fortunes made, to create the systems and legal entities that could survive and prosper over the long term.

Traditional organisations are rooted in extensive, physical forms and a concrete, geographical identity. They will have a large headquarters, which are their recognised home, perhaps a string of regional offices in-country and worldwide, which create high costs, inflexibility, and a reliance on high levels of financing simply to exist.

By keeping to an intensely physical form, organisations become vulnerable to change, in their market, and the wider business environment. The recent crisis for the banks is a good example of how organisations have been left feeling leaden-footed by rapid change, weighed down by assets and responsibilities.

Internet technology has transformed processes in organisations, and has now reached a stage of prominence, usability and credibility where it is capable of creating as dramatic a development in the business world as the creation of the limited company.

In this new context, different types of organisation are needed. These will be based on a principle of virtuality. The obvious models are already there in organisations such as Google and Amazon, which everyone recognises as businesses and brands, but few would be able to pin down to a particular place. Rather than having a recognisable home – like the flagship global headquarters for RBS at Gogarburn, which dominates the approach to Edinburgh Airport – they are omnipresent, not fixed to a location or to national and cultural loyalties; nowhere and everywhere.

The organisations behind these internet-based shop windows will be more flexible. And for HR professionals this means a future of different challenges presented by a leaner, looser structure, linked together by far more intangible connections than just turning up to the same place every morning. It will mean dealing with decentralised, dispersed operations staffed by bands of more flexible employees. There will be less likelihood that the HR function will be part of a central administrative department.

The need to develop and support a strong employer brand will be crucial in terms of providing a feeling of community and identity for employees, as will the need to attract and motivate employees who suit the virtual model. Managers will need to be developed with the skills to hold together people in different locations with more loyalty to their profession than their employer.

The transition to virtuality in organisations will be tough, but at the same time will offer great opportunities for thinking differently about organisations and working practices. If there is one major lesson from the credit crunch and ongoing recession, it has been the need for new ideas, to move away from a reliance on traditional attitudes towards the constant drive for growth, and the associated forms of business activity, which have been shown not to work in the current context.

Moreover, evolution and preparation over time for a different working environment will be far better than being forced into change as a result of the kind of market tremors and collapses seen in the past 12 months.

James Fleck, dean, Open University Business School

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