Virtual Organizations
This week-end I started reading an article from Dave Ulrich about the role of the HR Professional in the Virtual Organization which is Chapter 5 of a book about Human Resources in Virtual Organizations. I mentioned Ulrich in my blog about Our HR Organization as the provider of the organizational framework for the reorganization we did several years ago. In this article dating from 2002 Ulrich sets the stage for the HR work of the 21. century.
New organizational forms have emerged in today's economy: organizations characterized by horizontal structures, organizations that are working as alliances or networks, shared services structures etc. All of them entail a virtual organization.
Why are companies moving to these organizational forms? Through the web all players are more informed than ever. Targeting key customers, searching for the appropriate suppliers has become easier and less costly. Because of these and other transaction costs decreasing with technology the traditional organization looses it's value going from industrial age to information age.
Ronald H. Coase created the transaction cost approach to the theory of the firm. He defines three types of transaction costs:
search and information costs are the costs of finding others to do business with and determining if they could be trusted (suppliers, partners etc.)*
bargaining and decision costs or contracting costs are the costs of lawyers, time for negotiations, etc.
policing and enforcement costs or coordination costs are the costs of making the delivery process work.
*In Masood's blog you can read an interesting discussion about the search transaction costs.
It becomes evident that information technology has decreased all these costs. Through the ease of looking for suppliers worldwide and the ability to track the just in time delivery process many different suppliers nowadays contribute to manufacture a car although in former times a traditional car manufacturer would even have produced tires. Ulrich writes about the corporation in the information age:
“ In the Industrial Age, the corporation was seen primarily as a business unit and production as the business activity. In the information age, both the unit and the activity are displaced; the unit by the “business web” as the primary entity, and fulfillment as the primary business activity (i.e., not just products, but enduring relationships).”
As a result organizations will consist of many dispersed corporate entities with less bureaucratic integration moving away from hierarchical chains of commands, focussing on relationships and delivering a common customer value proposition. While traditional organizations expanded inside until the cost of performing transactions outside exceeded internal cost, virtual organizations shrink until internal transaction cost do no longer exceed external cost. The philosophy has been inverted, the default will more and more be to do work externally. Only when it can be done cheaper inside it will remain within the organization.
An important work to be mentioned is the one of Don Tapscott, David Ticoll, and Alex Lowy, authors of “Digital Capital (2000)”. I am citing out of a conversation done with the authors. On the question why outsourcing would be dead in the world of b-webs (business webs) they replied:
“ The lead firm in a b-web will want to control core elements of its digital capital - like customer relationships, the choreography of value creation and management processes, and intellectual property. Depending on the particulars, partners can take care of everything else”.
And they say on the future of the HR function:
“ As we move into the world of b-webs, the HR profession must reinvent itself. Rather than HR management, we need to think in terms of IHRM - inter-enterprise human resource management - human capital in its internetworked form. Companies must view the employees of their b-web's partners as extensions of their own capital, because competitiveness and customer value creation depend on accumulating and unleashing digital capital in all its forms. This will require a radical rethinking of traditional functions like recruiting, conflict resolution, and compensation.“
I will keep Ulrich's answer on the future shape of HR roles for one of my next blogs...
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Posted at
10:52PM Nov 19, 2006
by Volker Seubert in Human Resources |
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Comments[1]
Interesting post and discussion. Thank you. I also do say in my blog entry on the modeling of transaction costs as search costs that there are other costs that do not easily fit in as search costs. You mention some of these in your summary of Coase's thesis. The other issue which I discuss in my blog entry but do not pursue adequately hides an inkling of a thesis of my own: A technology sticks in the economy when it actually reduces overal transaction costs within the socio-political environment of that economy. This is a blind thesis and a bit tautological. Because if a technology sticks, we can say it reduces transaction costs within the constraints of imposed by it the socio-political environment. I will try to write about this tautological definition (which avoids the complex calculations of overal transaction costs) in a separate entry. In discussing this in the past, I've realized that only Douglass North is interested in these aggregate transaction costs because he connects to the evolution of social structures. Coase and Williamson seem to be more interested in transaction costs related to actual transactions at the boundary or inside a firm. They do not have hypothesis, like North does, regarding the aggregate transaction costs .... I wrote enough here to turn it into an entry later, which I think I will later on.
Posted by M. Mortazavi on November 21, 2006 at 04:27 PM CET #