Virtual corporation
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A virtual corporation is a firm that outsources the majority of its functions. Typically, a small group of executives will contract out and then coordinate the designing, making, and selling of products or services.
In theory, this allows small groups of knowledgeable executives to find the lowest supplier for any given service, and to concentrate solely on the "big picture". In theory, it also allows firms to be nimble, rapidly ramping up production without having to slowly develop people and competencies. However, as the old saying goes, there's no such thing as a free lunch. In practice, virtual firms are scarce due to the difficulties in constructing elaborate contracts that specify the distributions of profits, and because the short-term profit-centered relationships implied by the virtual structure discourage co-operation among the parts of the organization. Moreover, the contracts often fail to effectively measure the ephemeral quality. As a result, there is a tendency for suppliers to defect (in prisoner's dilemma parlance) by providing products that are "up to specs", but that fall short of rigorous quality standards.
The term was a buzzword in the 1990s for several reasons. The concept became popular during the dot-com era, when demand was high for new kind of services that traditionally organized companies relied on outsourcing to perform. In the day of the dot-com related businesses it seemed like everyone was so busy that they had to outsource most of their jobs to someone else. The idea that you actually didn't need to have a large number of regular employees to be a major player caught on, and thus virtual corporation became one of the typical ways of describing this phenomenon. In fact it seemed like business in general was about to restructure into a web of temporary outsourcing deals. The existence of the internet helped facilitate communication and cooperation across this web of contracts.
But the structure didn't just apply to trendy fast changing dot-com corporations. Other more traditional producers of consumer goods etc decided that they should sell their own production facilites and convert into making contracts on the fly with whoever could produce their type of product for the lowest price. Instead of managing a large structure of the entire value chain they could focus on marketing and branding their products. Companies like Disney, Nike Inc., and GAP became notorious for production of their goods in sweatshop conditions particularly in Asia.
External links
- Virtual Organizations: A new organizational form or just 'business as usual'? (http://www-users.cs.york.ac.uk/~kimble/teaching/mis/Virtual_Organisations.html) - extensive list of reference sites