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Case 2. The Virtual Corporation (p.1)

Many problems faced by business seem to be depressingly familiar. If you run a big complex company you battle
every day to get things done faster. If you run a small one, you often struggle to find the resources to make a
difference.
In today’s world to global market and fierce competition, the windows of opportunity are often frustratingly brief.
Few companies boast the in-house expertise to quickly launch diverse and complex products in different markets.
These organizational problems have led to the development of what has been termed the virtual corporation – the
corporation which is not a corporation. The virtual corporation is a temporary network of independent companies
– suppliers, customers and even erstwhile -rivals linked by information technology to share skills, costs and access
to one another’s markets. It has neither central office nor organizational chart. It has no hierarchy and no vertical
integration.
The virtual corporation‘s proponents claim that this evolving corporate model will be fluid and flexible. It will
quickly unite participants to exploit a specific opportunity. Once that opportunity is met, most often the group will
disband.
In its purest form, each company that links with others to create a virtual corporation will be stripped to its
essence. It will contribute only what it regards as its core competencies. It will mix and match what it does best
with the best of other companies competencies. A manufacturer will manufacture while relying on a production
design outfit to decide what to make and on marketing company to sell it. Proponents of the virtual corporation
claim that there is just not enough time or talent do to everything any more. Apart from that, technologies are
changing so fast that no one company can keep up with every technology it uses.
Case 2. The Virtual Corporation (p.2)

There is nothing new about the virtual corporation. Firms in such industries as construction, film making,
engineering, consulting and finance have come together for years for specific projects. The difference
now is that the evolving virtual corporation has developed to gain access to new markets and
technologies. The large scale downsizing which has occurred in most large organizations has seen a great
reduction in the number middle managers and management layers; however, it has essentially left the
basic structures intact. The virtual corporation is acting to blur the traditional hierarchical boundaries. It
also involves customers in helping to create and develop new products and services, and even
competitors are embracing each other to enter new markets or make products they cannot produce scale
without mass. Ultimately, it may be difficult to determine where one company begins and another ends.
New communication technology has allowed the development of the virtual corporation. The so-called
national information structure, using fax, computer linkages, video-conferencing and telephone, allow far-
flung units of different companies to quickly locate suppliers, designers and manufacturers through an
information clearing house. One theorist has even suggested that once organizations are connected using
such an infrastructure, they will sign electronic contracts to speed link-ups without legal complications.
New technology will allow teams of people in different companies to routinely work together,
concurrently rather than sequentially, via computer networks in real time. Artificial intelligence and
sensing devices will connect engineers directly to the production line.
Case 2. The Virtual Corporation (page 3)

From a management point of view, new management skills will need to be learned. Managers will have to build relationships, negotiate
“win-win” deals, find the right partners with compatible goals and values and provide the temporary organization with the right
balance of freedom and control. Some commentators are even suggesting that a new senior position be created, called “general
manager for external relations’, to oversee the many link-ups which are envisaged in this type of organization. Among other things, a
person in this position would monitor the outflow of technology to make sure that the company did not inadvertently lose its capacity
to compete.
The virtual corporation has its obvious drawbacks, however. Companies joining such networks lost control of the functions they cede to
their partners, who may not produce as expected. Proprietary information or technology may escape. The structure will also present
difficult new challenges for managers, who must learn to build trust with outsiders and manage beyond their own walls. Others are
wary of the idea because it conjures up ideas of “hollow corporation,” a term coined to describe a company that has increased profits
by abandoning manufacturing ad has sourced production in low-wage countries.
Most of the examples of successful virtual corporations are in what may be loosely termed high-tech industries. Apple computers is an
obvious example. It has used strategic alliances ever since its inception, and that is one reason it has an exceptionally high ratio of sales
to employee. Lacking the capacity to produce the entire line of notebook computers, Apple turned to Sony to manufacture the least
expensive versions. It was an obvious marriage of Apple’s easy-to-use software with Sony’s manufacturing skills in miniaturization.
Corning, a manufacturer or ceramic-based products, has nineteen partnerships along virtual corporation lines. It claims that the
partnerships have allowed it to develop and sell new products faster, providing size and power without the bulk. The managing director
of Corning claims that technology is developing so fast that nobody can be in front in every area any more.
Although there are some strong believers in the concept of virtual corporation amongst practicing business people, much of the
popularization of the concept has come from observers and academics. Implicit in their support in the virtual corporation is criticism of
what they term “obsolete” structures of the bureaucratic kind, deeming them inefficient ways of organizing. The fact is, however, that
strategic alliances of one form or another have been gaining in popularity over the thirty years. Perhaps Adopted
the virtual
from corporation is a
Virtual Corporation,
natural extension of this trend. Business Week, 1993
Questions:

1. What environmental factors have led to the development of the concept of the virtual
corporation?
2. Have the strong points of the virtual corporation been overstated and the weak points
glossed over?
3. Given that the virtual corporation needs some co-ordination, what replaces the
traditional co-ordinating mechanisms which exist in large corporation?
4. What is a better incubator of new organizational structures –business people
attempting to solve problems or academics and other proposing new forms? Support
your answer.
5. How can you apply the population-ecology point of view to assessing the longevity of
the virtual corporation as a concept.
6. Can the virtual corporation be used to advantage in all industries? Why or why not?
Case No. 3
Since the early 1980s, Australian business has undertaken considerable overseas expansion. Until that time virtually no
company had any major overseas operations. In the 1970s, BHP undertook a program of overseas expansion because it
felt that Australia should have at least one company operating internationally. If companies wanted to expand they only
considered expanding within Australia. The normal way to do this was to move horizontally into unrelated or barely
related industries, forming what were called conglomerates. This was inline with the current worldwide fashion for
operations to be diversified, and was also partly imposed by the more rudimentary communications systems of the day.
However, by the end of the 1970s, our own and other economies were starting to open up after years of government
control, protection and regulation. Also the jumbo jet had reduced the cost of cost of travel and large-scale and
inexpensive data transmission because common. Fashions in business also changed. The conglomerate with its unrelated
product range struggled to give an adequate return on the assets. The emphasis was now on identifying competitive
advantage and expertise in a few core products and building extensive businesses around them.
As Australia has a small internal market with a high cost base, this generated particular problems. Large-scale
manufacturing exports at that time were not feasible. Business’s response was to take the expertise in core products into
overseas markets by either buying or setting up subsidiaries in other countries. During the 1980s this lead to the
“Australia model of business.” This model is illustrated by firms such as Boral, which has extensive interests in building
materials in Australia, Europe, US and Asia. The building material industry is characterized by the need to produce close
to the final customer. One of the competitive advantages that the strategy developed by Boral gives is that innovations
developed in one plant an be quickly transferred to another anywhere in Boral’s network of companies. Similarly, if a
company is taken over, one of the first groups of people entering the plant are Boral’s production people, both to look for,
and to impart, more productive ways of doing things. In this way, a competitive advantage in many markets may be
gained over smaller-scale competitors.
Similar strategies have been used by CSR with its building material divisions, Burns Philp with its
yeast manufacturing, TNT and Brambles with their transport system, BHP, CRA and others with
mining and oil extraction technology, Pacific Dunlop with clothing and latex rubber products, Amcor
with packaging and Goodman Fielder with baked products. Fletcher Challenge in New Zealand had
undertaken similar expansion in the pulp and paper industry.
Most of the overseas subsidiaries are run on a decentralized basis in accordance with procedures
and parameters laid down by the head office. There is normally an Australian manager overseeing
the operation, but most of the management team is composed of local staff. There is often a board
of management covering each major geographical area, which is composed of people familiar with
the business systems in the country of operation. The local boards exist mainly to give advice. Each
factory is normally is a profit center, and the profit and loss figures are agglomerated into results for
each country and each product range. Common trademarks, logos and colors are normally
specified. A balance is sought between having too loose a structure, which allows local companies
to deviate from the plans set down by head office, and having too tight a structure, which does hot
allow for local variations in laws and marketing opportunities.
Questions: ( Group 3)

1. In the above case, has strategy followed structure, or has structure followed
strategy? Give evidence supporting your position.
2. Although the overseas expansion of some of the companies mentioned in the
case (e.g. CSR) has not been particularly profitable by most measures, most of
them would be described as successful. What does this tell us of strategy-
structure fit? Have the companies been successful because of their structure
or their strategy? What others factors could influence the success of their
overseas expansion and how can these be managed?
3. What characteristics may be exhibited by organizations which have a mismatch
between their strategy and structure?