Virtual relationships

Figure 3: Conditions favouring virtual organisations

New forms of relationships, including temporary or 'virtual' value chains, will become important and will be mediated by e-business. This may undermine the current view of partnerships as long-term relationships. 'Virtual relationships' will be based around and will last for the length of a particular project or product. However relationships may be built up that last across many projects. As companies outsource activities in order to concentrate on their core competencies these relationships will look and act very much like a single organisation, but only for a limited period. In this way an owner of a particular brand, perhaps associated with a new film or computer game, might form a virtual company with a designer, a manufacturer, a marketing company and the owner of a web site to make and sell a new toy. It is unclear in this relationship which is the supplier and which is the customer, and outside the relationship, the partners may compete with different products. Yet some or all of the partners may have long-term relationships which are built on the same foundations of mutual trust, openness and careful management as are the long-term partnerships of today.

The use of information technology to share data between buyers and suppliers is, in effect, creating a virtual supply chain. Virtual supply chains are information based rather than inventory based. (Christopher, nd)

There is no right or wrong model, but market and economic conditions may favour particular forms of organisation. In the future we believe that partnering and the use of virtual organisations will generally be preferred. Conditions favouring virtual organisations summarises the conditions favouring virtual organisations.

At present in the UK the term 'virtual company' is not defined in law. This study addresses only the business principles of such forms of organisation. Nothing here should be taken as a statement on the legal position of a virtual company.

The supply chain as a concept and a reality is moving far beyond the confines of an individual organisation. It has become a dynamic process that involves the simultaneous acquisition and continuous re-evaluation of partners, technologies and organisational structures. (Andersen and Lee, nd)

The economy that has existed since the Industrial Revolution, often termed the Industrial Economy, still largely consists of companies that are extensively vertically integrated and which have a portfolio of products or services. Recently firms have tended to move away from a product focus towards thinking about the businesses that the products represent. This has developed, as companies define their core competencies, into concentration on and management of the organisation's capabilities. In the future, where the timescale of many relationships will reduce and most customer/supplier dealings will be conducted electronically over the Internet, what might be called the Network Economy will develop. Virtual integration will replace Vertical integration in many sectors (see The progression from a vertically integrated industrial economy to a virtually integrated network economy) and companies will manage portfolios of relationships.

Figure 4: The progression from a vertically integrated industrial economy to a virtually integrated network economy

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