Virtualization and Its Role in Business

Virtualization and Its Role in Business

Jerzy A. Kisielnicki (Warsaw University, Poland)
DOI: 10.4018/978-1-60566-026-4.ch643
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A new management trend of the global information technology (IT) application—virtualization—has appeared in the contemporary management. Virtualization is a process of enterprise transformation (using IT) that allows breaking through various limitations of organizational constraints. Virtualization changes dramatically the image of business, especially of small and medium enterprises (SMEs); by adopting the concept of virtualization, they can become fully competitive and may effectively operate in the global market. Barriers of the scale between SMEs and large organizations disappear. This new type of organizations is often called in literature modern organization or virtual organization. Organizations of this type have an effective decision-making process, and function based on economic criteria. Consequently, their opportunities to grow and to compete in the global market are greater than for traditional SMEs. Hence the thesis that virtualization allows individual organizations to enter strategic co-operative alliances with other similar businesses. Such of virtual organizations have a competitive position in the global market. In the literature, there are many terms used to define virtual organization: “network organizations” (Drucker, 1988, p. 9), “organizations after re-engineering” (Hammer & Champy, 1993, pp. 77-79), “crazy organization,” “crazy time for crazy organization” (Peters, 1994, pp. 5-7), and “intelligent enterprise” (Quinn, 1992, p. 3).
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Virtualization, defined as a process of continuous transformation, is a herald of a new direction in the science of organization management. In the context of this analysis, this process may assume such form that will allow them to become competitive in the global market. The process of transformation consists of quick adjustments of the enterprise to new requirements (Hendberg, Dahlgren, Hansson, & Olive, 2000). This is done through changes in the organizational structure as well as in the portfolio of products and services. These changes are possible due to development in the IT sector, particularly Internet applications (Kenny & Marshall, 2000).

From the theoretical perspective, we can separate the following forms of virtualization:

  • 1.

    Functional extension (i.e., a vertical development). This occurs when the enterprise either wishes be closer to the customer and it does not have adequate resources or when the establishment of a traditional branch is not profitable. The enterprise creates for this purpose virtual branches or kiosks. Sometimes it enables their customers to use its services via computer or mobile phone. Examples are Internet banks, bookshops (best known is, department stores, and travel agencies. Large companies also commonly extend their scope through such vertical development. It ensures increased competitiveness with a simultaneous control over the whole organization. SMEs apply such a strategy to a limited extent, most often for the purpose of marketing their presence in the Internet.

  • 2.

    Creation of the virtual organization, or the horizontal development. Such a development occurs through a virtual incorporation of other organizations. The literature lacks a unanimous definition of this concept (Hendberg et al., 2000; Kisielnicki, 1998; Quinn, 1992; Scholzch, 1996).

  • 3.

    Specialist structures being created in order to collaborate. In physical terms this is a computer or a network of computers equipped with specialist software. This form of virtualization is used for raising qualifications of the personnel by both SMEs and large enterprises (Fong, 2005).

For the purpose of this analysis, we assume that:

Virtual organization is created when its members voluntarily enter in relations of various types to achieve their common goal. Every member who creates this organization defines duration of the relation. The member who first admits that the existence of that relation is unfavorable, makes the decision on its liquidation, and withdraws. The virtual organization operates in the cyberspace and requires existence of the Internet and global IT infrastructure.

Key Terms in this Chapter

Cyberspace: Defined by the Miriam Webster Online dictionary as an “online world of computer networks.” This definition can be augmented by the following characteristics: the network consists of various, globally distributed computers that can send and receive information using common protocols. In addition, this network does not have physically defined measured boundaries. The examples of the network types are electronic mail (e-mail), World Wide Web (WWW), electronic data interchange (EDI), business to business (B2B) applications, business to customer (B2C) applications, and peer-to-peer (P2P) applications

Virtual Organization: (a) Virtual organization ( Kisielnicki, 2002 , p. 102) is created voluntarily; its members create this organization to accomplish a certain goal. Virtual organization is created anytime a manger realizes that he or she needs the cooperation of other organizations to accomplish its goal. The duration of a virtual organization is defined by each of its members; virtual organization operates in the cyberspace, which means that its duration can be very short, so short in fact, that it would be impossible to cooperate with other organizations using the traditional methods. The decision to restructure or fold the organization can be made anytime by any of its members. Virtual organization does not have one president or general manager. The virtualization process is a process of transformation from traditional organization into virtual using informational technology. This process can result in two forms of virtual organization: traditional organization with virtual divisions, or an association of many organizations, as depicted in Figure 3. (b) Artificial organizational structure where individual organizations provide base competencies. The integration and coordination of these base competencies allows for effective execution of chain process to deliver a product and satisfy a customer. This integration and coordination does not incur additional costs and maintains the customer focus ( Scholzch, 1996 ). (c) Temporary network of independent enterprises—suppliers, customers, even former competitors—linked through the IT and working together to share their knowledge and costs to enter a new market ( Byrne & Brandt, 1993 ).

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