In the name of God

Author:

Mehrdad Madhoushi, PhD, Business Management department,

Mazandaran University, IRAN

Email: madhoshi@umz.ac.ir

Tel: +98(112) 5245415

Fax: +98 (112) 5242704

Measuring the effectiveness of virtual organization in Iran Electronics Industries (IEI)Mehrdad Madhoushi

Mazandaran University, IRAN

Key words: Organizational effectiveness, Virtual organization, Iran Electronics Industries (IEI)

Abstract: Increasingly, the trend of agility, mass – customization, global markets and supply sources and the

increasing demand by consumers, are shifting the competitive focus to complex and rapidly changing virtual

organizations. In rapid technological development and increasing competition area organizations co- operate

in many different ways. New ideas and concepts that emphasize the role of virtual organizations and networks

have currently been introduced with changing in business environment and customers, needs. Important

reasons for increasing and expanding organizational networks are mass- customization, extension of products,

globalization, and agility.

The paper tries to explain how the effectiveness of Fables factory as a virtual organization in Iran Electronics

Industries has been measured. For measuring virtual organizations effectiveness in this research, the

stakeholders (constituencies) satisfaction approach has been used. In this paper at first virtual organization, its

characteristics been explained and then the organizational effectiveness has been preceded.

The employees, customers, company's owner and contractors as stakeholders have been identified, their

satisfactions were measured and the results have been included in this paper.

Introduction

Organizations are the main elements of the new societies and management is the most

important factor in the life, growth and death of an organization. Nowadays wide changing

and acquired progresses in Information technology area during last few decades require an

inevitable revision in different problems, among them, the structure of future organizations. A

proportional organizational shape for future space is virtual organization.

Virtual organization is a temporary network of independent companies, which combine

their individual core competencies to optimize the process to each other’s markets(Roland

Bauer).The structure of these organization tries either to keep organizational units smaller in a

way to warrant many benefits or to avoid spreading large organizations which require huge

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targets. Clear-sighted believe that establishing virtual organization causes effectiveness in

organization especially in future.

Methodology

The main purpose of this research is “measuring the effectiveness of the virtual

organization in Iran Electronics industries.” The main question is as follow:

Has the virtual organization in Iran Electronics industries been effective?

The effectiveness measurement is characterized by a number of divergent approaches. Due to

the lack of a common framework most of the available theoretical and empirical work cannot

be compared, and can, for this reason, hardly contribute to general understanding of the

phenomenon. It is therefore important to apply an established and empirically well assessed

theoretical framework that can guide and structure this research.

For measuring the effectiveness with modern method, the two following approaches used

(Daft, 1998):

- Stakeholder Approach (Constituency Approach).

- Competing Values Approach.

This research have been used the S.O.C approach (Satisfaction Of Constituencies

approach)/ satisfaction of stakeholders approach for measuring the effectiveness of Fables

factory as a virtual organization in Iran Electronics Industries (I.E.I).

In this approach with due constituency, many different activities are integrated together. It

is possible, that one of the constituencies situates in the organization or in other organizations

that have some benefits in cooperating with the virtual organization.

Customers, employees and companies' owner, Contractors are constituencies in this

research. For determining the effectiveness, their satisfactions have been measured.

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By measuring the satisfaction of each stake holder the effectiveness of virtual organization in

Iran Electronics Industries (I.E.I) has been determined. The sub questions of this research are

as follows:

How much is the satisfaction of the employees?

How much is the satisfaction of the customers?

How much is the satisfaction of the contractors?

How much is the satisfaction of the company's owner?

In the company not all the constituencies have the same importance. Because of that, the

importance degree of each of the strake holders has been indicated by Analytical Hierarchy

process (AHP).

Figure 1- Flow Chart of Constituency approach

The owner, satisfaction were measured by the ratios of benefit and sale, and comparing

them with other factories.

The employee’s satisfaction was measured by Job Descriptive Index (JDI). In this model

by using a standard questionnaire, the satisfaction of this constituency has been measured.

The customer’s satisfaction was measured by Service Quality Index (SQI). In this model

there is a standard questionnaire by using which the degree of customer's satisfaction has been

measured.

The Contractors’ satisfaction was measured by a questionnaire that after interviewing the

contractors has been made.

Output InputTransmission process

Satisfaction of constituencies

approach

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Theoretical Background

○Understanding virtual organizations

Maarit Ivalo say, There were two interesting definitions of a Virtual Organization as follows:

First, “A Virtual Organization is a temporary network of independent institutions, enterprises of specialized

individuals that, through the use of Information and Communication Technology, spontaneously unite to utilize

an apparent competitive advantage. They integrate vertically, bring their core competencies and act to all

appearances as a single organizational unit”.

Second, “a Virtual Organization is an identifiable group of people or organizations that make substantially

more use of Information and Communication Technologies than physical presence to interact, conduct business,

and operate together in order to achieve their objectives”. The aim of the Virtual Organization is to

achieve market differentiation by performing better. The corporation obtains all non-critical

competencies (activities) from outside, i.e. from other corporations with which it forms a

Virtual Organization. Furthermore, it aims to improve competitiveness and productivity, to

enhance efficiency and responsiveness and decrease overheads.

Key factors mentioned are: emphasis on a more egalitarian approach to management, the entities

involved are interdependent and yet tied together in a loose network with some pre-defined procedures or

protocol to guide any collaborative arrangement entered into, the key to creating a Virtual Organization

is “human” and not technology, a Virtual Organization must touch on (an) issue(s) that have a direct,

immediate impact on the group involved, legislation on the Virtual Organization might differ from

country to country, commitment from each participant to the Network Organization (spontaneous

Network Organization) or to reaching the (short term) goal of the Network Organization (forced Network

Organization), all comments should be public and shared with the entire group. Learning how to think in

the Information Age is the single most critical “technology skill” which you must acquire as an associated

partner.

Eva Fuehrer brings her definition to the discussion: “A Virtual Organization is a temporary

network of independent institutions, enterprises or specialized individuals that, through the use of information

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and communication technologies spontaneously unite to utilize an apparent competitive advantage. They

integrate vertically, bring their core competencies and act to all appearances as a single organizational unit.

Fuehrer is aware that her definition of a Virtual Organization is an ideal type definition which needs

explanation and also awareness of its limitations”.

Two reactions to the definition of Fuehrer: Louis Mousy replies that it is a problem for a

Virtual Organization to quickly find the necessary and reliable organizations to cope with a

new project. Gary L. Fetgatter says that if there is a definition of temporary there must also be

a definition of permanent.

Fuehrer answers that when she was discussing the features of a temporary Virtual

organization she did not imply that a permanent organization can not have temporary

structures or can not react swiftly to changing market conditions. However, she does think

that Virtual Organizations have the ability to react faster than highly bureaucratic or

traditional organizations. And this is their advantage. She goes on to say that temporary

cooperation is not the only characteristic of a Virtual Organization.

Thus one cannot generalize from one characteristic of one concept to one characteristic of

another concept. Projects as well as Virtual Organizations do involve temporary cooperation

of people within and/or between organizations, but a Virtual Organization is more than that.

What about the notion of core competencies or value adding partnerships. That is what she

sees as the difference between a project and a Virtual Organization.

Guy Morrissey then comes up with another definition from Lipan, J.; Stamps, J. [1]:

“A virtual team, like every team, is a group of people who interact through interdependent tasks guided by

common purpose”. Unlike conventional teams, a virtual team works across space, time, and

organizational boundaries with links strengthened by webs of communication technologies.

For the purpose of this discussion the word “team” could be changed into “organization” in

the definition.

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The discussion about terms and definitions continues. Pascal Siebel quotes Arnold, O.;

Faisst, W.; Hurtling, M.; Siebel [2]:

“A Virtual Organization is a form of cooperation involving legally autonomous companies, institutions

and/or individuals delivering a product or service on the basis of a common business understanding. The

cooperating units participate in the collaboration primarily with their core competencies and present themselves

to third parties as a unified organization, when delivering the product or service.

In so doing, they largely dispense with the institutionalization of central management functions for shaping,

managing and developing the Virtual Organization, through the use of appropriate information and

communication technologies” (Translated from Germany by the author).

And Venkatraman, N.; Henderson, C, (1996), says:

“Virtualness is the ability of an organization to consistently obtain and coordinate critical competencies

through its design of value-adding business processes and governance mechanisms involving external and

internal constituencies to deliver differential, superior value in the market place.”

The Virtual Organization versus The Post-Bureaucratic Organization is:

Transformation-by means of information technology of paper into electronic records

Computer-mediated communication replacing human communications as a means of

conducting the primary activities of the organization and maintaining organizational

coherence

The implosion of bureaucracy with the eradication of specialized tasks replaced by

cross-functionality

The networking of individuals from technically separate firms (such as suppliers,

customers, and even competitors) to the extent that clear external boundaries of the

organization become difficult to establish in practice

Most discussions in the literature gloss over these failures with the statement that Virtual

Organization is enabled by the use of new information and communication technologies.

Someone finds that the definition does not emphasize the distinguishing features of Virtual

Organizations, for example, the temporal relationship, the benefits from the cooperation, the

local goals of different companies. Also a “virtual company “is not the same as a Virtual

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Organization. For example, a university can be a virtual organization, but it is not a company.

A company is in business, and its aim is to make profit. (Strausak Nicole)

The following definition of the Virtual Organization basic on above dissuasions was offered:

“A Virtual Company has been defined as one where complementary resources existing in a number of co-

operating companies are left in place, but are integrated to support a particular product effort for as long as

it is viable to do so. Resources are selectively allocated to the virtual company if they are underutilized or

they can be profitably utilized there more than in the home company”, (O’Leary, Daniel and Plant, 1997)

○Virtual Organization Lifecycle Model (Strider et al, 1998)

According to Strider et al (1996) virtual organizations go through four distinct phases during

their life cycle. This life cycle constitutes identification, formation; operation and termination

phases (see Figure 2). Each step is accompanied by distinctive challenges and tasks.

Mowshowits (1994) and Strider et al. (1998) propose tasks, decision processes and

management activities that initiate and support the change process.

Figure 1- Virtual Organization Lifecycle Model

Identification Formation Operation Termination

Opportunity

Identification

Opportunity

Selection

Partner Identification

Partner Selection

Partnership

Formation`

Operation

Termination

Asset

Dispersal

Strider et al define two or more major decision processes for each of the four stages of the

lifecycle- the identification and opportunity evaluation and selection. These decisions are

sequentially related.

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Design

Marketing

Financial

Management

Manufacturing

Distribution

The identification stage ends once the best available market opportunity has been selected

to pursue. The most important decision in the second stage includes partner identification,

partner evaluation, selection and partnership formation.

The partnership formation involves the actual formation of these selected firms into the

actual virtual organization. Once the organization has been formed, it can begin its operation

phase. In the operation phase important decisions relate to the five functional areas of design,

1 Guy Morrissey comes up with another definition from Lipan, J.; Stamps, J.: Virtual Teams, Reaching across Space, Time, and Organizations with Technology, New York et al. 1997

2 Pascal Siebel quotes Arnold, O.; Faisst, W.; Hurtling, M.; Siebel, P.: Virtuelle Unternehmen ALS Unternehmenstyp der Zukunft? Handbuch der modernen Datenverarbeitung 32 (1995) 185, p. 8-23.

References:

Bauer, Roland & Köszegu T. Sabine, (2003), "Measuring the Degree of Virtualization", Electronic Journal of Organizational Virtualness, vol. 3, no.3 Available on www.virtual-organization.net.

Chin Lai Hwang & Kwan sun yon, (1981), “Multiple Attribute Decision making: methods and application” Germany Spring Verily.

Curt, Tausky, (1998), “Work organization”, Illinois: peacock publishers, Inc.

Daft, Richard L., (1998), sixth Edition, South-Western College publishing.

Frank, J, U. (2001), “The Concept of Virtual Web Organizations and Its Implications on Changing Market Conditions”, [Computer Program], Available at: (www.virtual–arganization.net ).

Guy Morrissey et al., (1997),” Virtual Teams, Reaching across Space, Time, and Organizations with Technology, New York.

Hampton, D.R; (1997), “Management”, New York: McGraw-Hill Book Co.

James W. Corlada, et al., (1997), “The Quality Yearbook”, reprinted With Permission from Quality Progress, McGraw-Hill Co.

Leicester Jan, Marco, et al., (2001),“Efficiency of Virtual Organizations – The Case of AGI–”, Electronic Journal of Organizational Virtual ness, Vol. 5, No. 2, Available on www.virtual–arganization.net.

Lovelock, Christopher & Wright, Lauren, (1999), “Principles of Service Marketing and Management” New Jersey: Prentice Hall.

Saabee L.W.; et al., (2003), “A Model of Virtual Organization: a Structure and Process Perspective” Electronic Journal of Organizational Virtualness, Available on www.virtual-organization.net.

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marketing, financial management manufacturing and distribution. When the market

opportunity is fulfilled or has ceased to exist, the virtual organization will be terminated. The

major decision processes in the termination phase include operation termination and asset

dispersal.

Application of Constituencies Approach

As mentioned in part 3, this approach uses the satisfaction of the strategic constituencies for

measuring the effectiveness. For this purpose, in this research, four stakeholders have been

known: Customers, Employees, Contractors and Company owners.

○Measuring Customers Satisfaction

There are many ways for measuring the customers’ satisfaction; Service quality scale,

functional/ technical model of service quality and Kano model are some of them.

In this research service quality scale has been applied. This approach has five variables as

follows.

Scott. W. R., (1998), “Organization: Rational, Natural and Open System”. New Jersey, Prentice Hall.

Shao, Y. P., Lieu, S.Y. and Wang, H. Q. (1998), “A Model of Virtual Organization” Journal of Information Science, 24:5, pp. 305-312.

Strider, T. J. Lin, F., Shaw, M.J.; (1998), “Information Structure for Electronic Virtual Organization Management”, Decision Support System, 23, pp. 75-94.

Wigand, R. & Picot, A. and Richweed, R., (1997) “Information, Organization and Management: Expanding Markets and Corporate Boundaries”, New York; John Wiley & Sons.

Strausak Nicole: (http://irn.iwi.unibi.ch).

O’Leary, Daniel and Plant,(1997),”AI and Virtual Organizations”,

Communications of the ACM, January.

Venkatraman, N.; Henderson, C, (1996), “The Architecture of Virtual Organizing: Leveraging Three

Interdependent Vectors”, Discussion Paper, Systems Research Center, Boston University School of

Management, Boston.

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Obvious factors: modern equipments, considerable physical equipments, neat and

arranged employees, regular and ordered documents.

Trustworthiness: doing the promised work in determined time, showing specified

interest for solving clients' problems, making reforms in services, produce services in a

certain time and showing correct reports.

Answering: stating accurately the services that employees give to customers, give

services at the least time , employees’ continual interest in helping customers and employees’

reply to clients every time.

Confidence: making confidence in customers by behaving well, making safe

customers feel, behaving respectfully and politely towards customers and employees’ enough

knowledge.

Empathy: paying attention to customers, good work time for all customers, to wish

the best benefit for customers and understand the customer's specific needs.

These five variables have 22 factors that are mentioned above. Twenty-two questions have

been made by these factors as a customer's satisfaction questionnaire; 86 questionnaires have

been handed to customers as statistical sampling and the result of each variable and final

satisfaction after making normalized are as Table 1:

FactorsExpectation

AmountPerception Amount Satisfaction

Normalized

Satisfaction

Obvious Factors 4.19 3.83 92% 47%

Trust worthiness 4.37 3.76 87% 88%

Answering 4.11 3.89 95% 66%

Confidence 4.32 3.83 89% 47%

Empathy 4.11 3.74 92% 61%

Final Satisfaction 4.33 3.81 91% 71%

Table 1- Measuring and Normalizing the Customers’ Satisfaction

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○Measuring Employee's Satisfaction

For this purpose, Job Descriptive Index (JDI) has been used. In this standard approach five

variables have been surveyed: nature of work, supervisor, coworker payment, and promotion.

The averages and normalized results for all variables and final satisfaction are as Table 2:

Factors Average Normalized satisfaction

Work Nature 4.02 73%

Supervisor 2.99 59%

Co-Worker 3.30 67%

Payment 3.34 74%

Promotion 2.65 36%

Final Satisfaction 3.36 69%

Table 2- Measuring and Normalizing Employees Satisfaction

○Contractors’ Satisfaction

For measuring this stake holders for variables have been known.

- Company’s good payment.

- Credit accruing on working with IEI.

- Benefits accruing on working with IEI.

- Amount of I.E.I’s orders

The averages and normalized results for all variables and final satisfaction are as Table 3:

Factors Average Normalized satisfaction

Good Payments 3.80 70.11%

Credit 3.87 77.74%

Benefit 3.91 63.77%

Orders 3.76 69.02%

Final Satisfaction 3.84 77.91%

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Table 3- Measuring and Normalizing the Contractors’ Satisfaction

○Company Owners’ Satisfaction

For measuring the satisfaction of these stake holders the profitability and activity

(efficiency) ratios have been used. Profitability ratios contain: sale returns ratio and assets

return ratios. Activity (efficiency) ratios contain: inventory turnover ratio, assets turnover

ratio and average collection period ratio. The result of these entire five variables has been

compared to five factories in IEI and the final grades have been normalized. The amounts of

each ratio, the normalized grade for each variable and final satisfaction of company’s owners

are as Table 4:

Factors Ratios Normalized Satisfaction

Sales Return 23.59 63.88%

Assets Return 42.46 100%

Inventory Turnover 3.75 84.48%

Assets Turnover 7.8 100%

Average Collection Period 67 days 60.73%

Final Satisfaction 81,73%

Table 4- Measuring and Normalizing the Companies Owner Satisfaction

Concluding Remarks

In this research, the average of each constituency's satisfaction has been measured and these

averages have been normalized between 0-100. After finding these normalized averages. They

were multiplied by their specific importance degrees. And totally the collection of all these

numbers collection shows the effectiveness amount of virtual organization in Iran Electronics

Industries (IEI). The following table shows these averages, importance degrees, total numbers

of them and finally the effectiveness amount in Iran Electronics Industries (IEI) (see Table 5).

Importance DegreesSatisfaction’s

Percentage

Share of Each

Constituency in

Effectiveness

Employees0.14 69.00 9.66

Customers 0.52 70.59 36.71

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Contractors0.09 71.91 6.47

Company Owners0.24 81.73 19.61

Effectiveness Amount in virtual organization

1.00 72.45 -

Table 5- Effectiveness of Virtual Organization in IEI

The above table shows: The average of employees’ satisfaction is 69% and its importance

degree is 0.14, the average of customers satisfaction is 70.59% and its importance degree is

0.52 .The average of contractors satisfaction is 71.91% and its importance degree is 0.09. The

average of company owners’ satisfaction is 81.73% and its importance degree is 0.24%.

Totally after multiplying each satisfaction percentage by importance degree, the share of each

constituency in effectiveness has been gotten. And, at last, the collection of all these shares is

what we call the effectiveness of the virtual organization in Iran Electronics Industries.

Suggestions

Due to the conclusion of the research, there are two kinds of suggestions: the applicable and

the inquiring suggestions. In applicable suggestion, it should be tried to improve the

employee's knowledge. This will make them capable of replying well to customers, that

causes customers satisfaction and finally the effectiveness of virtual organization. The other

suggestion is, making promotion in sale office physical equipment and making the sales

employees adorn and persuading them to behave well.

In inquiring suggestion, it should be tried to ameliorate employee's career situation. In

other words, a good program should be arranged for employee's promotion in organizational

hierarchy.

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