Virtual Management - a New Business Organization Paradigm

by JJ Murphy

This article discusses how traditional organizational management methods and structures are failing to adequately accommodate a complexity-based world view, which is characterized by discontinuous change, hyper competition and the exponential explosion of information science. Virtual organizational management is the needed change in the management paradigm.

This article argues that traditional management methods and structures are failing to adequately accommodate a complexity-based world view, which is characterized by discontinuous change, hyper competition and the exponential explosion of information science and shows how the management paradigm has been updated by the new era of the virtual structures.

While the management structures and systems developed by such researchers as Weber, Fayol, Taylor and Drucker in the 19th and 20th centuries established a management paradigm which has endured up to the millennium, these "simple" structures and systems were more suited to a time when competition was slower, less aggressive, and characterized by long periods of stability, and when information science was in its embryonic or primordial stage. It is abundantly clear, however, that the arrival of the 21st Century demands a fundamental rethink, and the development of a management paradigm that can withstand the pressure of rapid change in a borderless, connected and wired world, relying more and more on virtual structures - a virtual management system.

New technologies have led to a new information/ knowledge-based economy, in terms of which organizations have become increasingly complex. The technologically induced emergence of a "virtual" environment has resulted in the adoption of new organizational structures /and work practices, and has created several management and leadership challenges for the traditional twentieth century management paradigm.

The emergence of such technologies as e-mail, the Internet, telecommuting, and voice mail has spawned such products as the virtual office, the virtual company and virtual teams. The effective and efficient operation of these products, however, requires closer scrutiny in order to understand the organizational code involved, that is, the discovered order of the organization.

An approach that has received increased attention from management scientists is that of the so-called "New Sciences." In the New Sciences, the trinity of reductionism, determinism and causality is rejected, and replaced with probabilities. The inspection of the theories of Quantum Mechanics, Complex Adaptive Systems, Chaos and Game Theory, among others, provides an in-depth and conceptual understanding of such issues as leadership, organizational design, management control, the structuring of relationships in the post-bureaucratic era, as well as such esoteric concepts as Culture, Vision and Adaptation. The New Sciences approach to management will, however, require a shift from the traditional management paradigm to a new paradigm more conducive to the effective and efficient operation of Virtual Management.

The Changing 'Management Paradigm': Virtual Management


This article attempts to describe the relatively new concept of the virtual organization. It is a concept which the press has regularly discussed (Bennett, 1999: Stewart, 1999: Bidoli, 1999), but it has not been extensively researched as a holistic concept. Certain sectors of industry have examined aspects of the virtual organization/ workplace (Rockart, 1998), but this research is limited to their specific area of interest.

The article will elaborate on what defines a virtual organization, and will discuss the implications for key areas within the organization. Initially, the discussion will centre on the drivers of change towards the virtual organization, with particular reference to the economic and technological influences. This will be followed by looking at the changes occurring in organization structures, skills and competencies. Attention will also be given to the social elements, with particular reference to the human element.

The application of the"New Sciences "to the management of organizations in the age of hypercompetition will also be investigated, in order to see whether it could improve our understanding and insight into the modern business organization. Due to the fact that this is a new and exciting way of managing a business, the amount of research literature available is limited. As always, when entering such uncharted waters, more questions will be raised than answers given, but this is indicative of a new concept, and leaves room for more intensive research which will provide a greater understanding of the value added by this management paradigm.

The Traditional Management Paradigm

The Industrial Revolution gave birth to many of the most widely taught and used management tools of today. These include such tools such as Porter's five forces framework, cost curves, and the concept of sustainable competitive advantage (Beinhocker, 1997:26).

Binedell (1994:4) adds to this list:

  • Harvard Business School's SWOT model
  • General Electric's Competitiveness/ Attractiveness market model
  • the Boston Consulting Group's Growth Share Matrix
  • the Experience Curve
  • PIMS/ Regression Analysis
  • the Merger and Acquisition/ Shareholder Value model of the 1980's
  • Porter's updated Industry and Competitor Analysis model
  • strategic intent and core competence
    and, most recently
  • the organizational transformation and learning organization models.

Beinhocker (1997) argues that industrial organization theory, itself, is based on neoclassical, micro-economic theory, which was founded in the 1870's, and was based on the ideas of energy physics, which had been popularized some twenty years earlier. The neoclassical micro-economists then "copied the mathematics of mid-nineteenth century energy physics (Newtonian science), equation by equation, translating it metaphorically into economic concepts" (Beinhocker, 1997:26). This thinking was synthesized into a coherent economic theory at the turn of the 20th Century, and forms the basis of what he calls "management's family tree" ( Descended from early thermodynamics through micro-economics, to Porter and his five forces model of strategy and a host of other management theories).

Consistent with this, Cook, Hunsaker and Coffey (1997: 568-575) argue that the First twenty years of the 20th Century produced several streams of thought, all of Which believed that management could be systematically learned and codified. Pellegrini (1995) suggests that Newtonian science, which became the model for nearly all the other sciences and social sciences, was responsible for this belief because it had shaped the way Western civilization thought about "the nature of the universe, of man, and of God." Accordingly, it became impossible to separate thinking about management from this overarching paradigm, which reasoned that the universe operated in harmonious order, which, if not readily apparent to man, was due solely to his limitations. Pellegrini suggests that, ultimately, all fields of human endeavour adopted the Newtonian principles of causality and reductionism as the keys "to unlock virtually all aspects of man's existence".

It is this intellectual heritage that forms the basis of today's management paradigm. The basic principles underlying this paradigm are that: industry structure can be accurately determined: the law of diminishing return is relevant: the parts constitute the whole: the law of causality is applicable: determinism is a fact of life, and companies are completely rational.

Against this background, it is not surprising that Taylor's "scientific management" movement of the early 1900s held that the scientific observation of people at work would reveal the single best way to do any task; or that Henri Fayol's "administrative management principles" elevated the study of management from the shop-floor to the total organization; or that Max Weber's concept of bureaucracy provided a structure to organize specialized functions and to standardize procedures to achieve maximum efficiency. It is true these concepts were subsequently tempered with behavioural approaches and systems theories but, nevertheless, what stands out above all else, is the enduring effect these early theorists have on management thinking right up to the present.

A New Management Form for a New Reality

The techniques, concepts and structures articulated by people such as Taylor, Fayol and Weber are proving less effective in today's increasingly connected/ wired world. Organizations find that traditional management methods and structures - which were devised in an era, characterized by "closed equilibrium system" thinking, and when businesses were stable, competitors few, customers loyal, and financial results predictable - fail to adequately deal with the realities of a complexity-based view of the world in a new, virtual era defined by D'Aveni (1994) as one of "discontinuous change and hypercompetition". The new, virtual reality wold requires a new form of management, a virtual management.

According to D'Aveni, (1994), Ohmae (1995 ), Beatty and Ulrich (1993), several trends emerged simultaneously during the 1980's, which were brought about largely by the convergence of existing and new technologies. Globalization, reduced technology cycles, shifting demographics, changing expectations among workers and customers, the restructuring of capital markets, the exponential expansion of information technology and computer networks, the rapid advances of information science, as well as the dismantling of hierarchy, are all examples of these trends.

It is for this reason that Toffler (1999) now identifies a Third Wave which he calls the Information or Knowledge Age, characterized by a new economic reality. This differs from the standardization ethic, which dominated the Second Wave, in terms of the degree of "individualization and diversity" that technology has made possible.

Stewart (1993:32) has identified some of the consequences of these trends. The frantic pace of change in technology, geopolitics and markets has left many organizations vulnerable. Computerized information systems have lead to lower unit costs and higher productivity; sheer size is no longer sufficient for large companies to dominate in a world of fast-moving, flexible smaller organizations; rapidly changing technology has made the concept of the experience curve obsolete as a strategic competitive tool, and the customer and consumer are both smarter and more demanding. In addition, emerging around the trends identified above is the whole new information economy, identified by Toffler, in which the fundamental sources of wealth are ones pertaining to a virtual world: knowledge and communication, rather than natural resources and physical labour.

In short, these authors believe that the current/ traditional perspectives on management are inadequate to cope with a hypercompetitive and fast changing environment, and that these traditional approaches are better suited to slower and less aggressive competition, characterized by long periods of stability between disruptions. New methods and management systems are demanded by the complex, rapidly evolving, virtual business environment of today. As economies and organizations become increasingly complex, as the environment changes more rapidly, and as acceptable response times diminish, the old management structures are simply failing to satisfy. Additionally, because of the technologically induced changes to work practices, new leadership and management challenges are constantly emerging.

One of the impacts that technology - as defined by Beatty and Ulrich (1993), D'Aveni (1994), Toffler (1999) and Hardison (1989) - has had on society, especially technology that allows people to communicate across intra-organizational and inter-organizational boundaries, is the creation of what Noble (1996) calls the "boundaryless organization in a borderless global marketplace". According to Robbins (1996:565), the boundaryless organization "seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams". In such an organizational structure, vertical boundaries are removed to flatten the hierarchy, and horizontal boundaries are removed in order both to replace functional departments with cross-functional teams and to organize activities around processes. When fully operational, boundaryless organizations remove the barrier of geographic distance from external constituencies. Such organizations are thus characterized by:

  • a decreased dependence on a command-and-control style of leadership;
  • a breakdown of hierarchies and a changed management system;
  • an increasing commitment to virtual technologies;
  • reliance on teamwork;
  • greater flexibility;
  • knowledge centres that interact largely through mutual interest and electronic - rather than authority - systems. 

These are attributes of a virtual management system.

In response, new organizational forms have emerged, including virtual enterprises (defined as small, core organizations that outsource major business functions), imaginary corporations, dynamic networks, and flexible work teams(Raghuram, Garud and Wiesenfeld, 1998). The emergence of these so-called virtual companies, and the rise of outsourcing and telecommuting, will axiomatically lead to the proliferation of freelance and temporary workers, while large corporations will become dominated by ad hoc project teams and independent business units. All trends point to the devolution of large, permanent corporations into flexible, temporary networks of individuals, connected by personal computers and electronic networks, who join together to produce and sell goods and services, and who, when the job is done, again become independent agents.

More importantly, such organizations are embracing new technologies and work practices. Some of these include:

  • Telecommuting: defined as professionals working remotely, not only at home, but while on the move, in cars, hotels, branch offices, and any other off-site locations.
  • Group teleconferences or tele-meetings: used instead of on-site meetings.
  • Group tele-classes: used to conduct training over the telephone, rather than on-site.
  • Just-in-time training modules: these will be offered via website, e-mail, fax-on-demand, or by teleconference, in order to provide immediate training and solutions for staff that face technical problems.
  • E-mail: electronic mail replacing the slow land, sea and air based mail systems.
  • Voice mail: useful system for people in the field to call in their results.
  • Paging: used to send messages throughout the day to keep everyone updated " And motivated. " Website/ Intranet: capable of becoming data collection and gathering facilities to reduce the number of e-mails. " Project management software: enables team members to keep in touch with all aspects of a project. " Groupware software: defined as collaboration and tracking software - such as Lotus Notes - that enables any member of a team to communicate directly with other members without physically having to speak to them or to visit them (Leonard, 1997).


These developments, of course, raise a number of questions around the issue of management in this virtual landscape, especially around the management of human resource issues such as productivity, job satisfaction, organizational commitment and company identification. Other issues, such as skills, empowerment, motivation, relationships, leadership, responsibilities, authority, accountability, status and power, all create problems.

Furthermore, Virtual Management (with its applicable technologies and information systems) as a possible solution to the discussed trends and developments, cannot be effectively and efficiently implemented or utilized unless we go beyond the insights given by Newtonian science. Understanding this new organization as a complex adaptive system, its architecture, its dynamics, and its organizational code, implies a level of understanding beyond what is taught in most business schools today.

Fortunately, there is a body of science, the so-called New Sciences, which promises much in the advancement of our understanding of the complexities of the business organization and its environment, whereas the present theoretical concepts are controlled by the increasingly less.

Applicable Newtonian Science, the New Sciences of Quantum Mechanics, Complex Adaptive Systems, Chaos Theory, Game Theory, Field Theory and others, will prove the most important from the present perspective.

Emerging New Approaches to Leadership and Management and their Interface with Virtual Management

Margaret Wheatley (1994) turns to the New Sciences to demonstrate how some of the issues discussed above might be accommodated. She shows how the New Sciences - including Quantum Physics, Chaos Theory, Chemistry, and Molecular Biology - provide insights into transforming how organizations organize "work, people and life", in order to meet the strategic imperatives defined by D'Aveni. In particular, Wheatley draws on the New Sciences to apply scientific concepts to the problems of order/ change: autonomy/ control: structure/ flexibility: and planning/ innovation within organizations, and in so doing, calls, respectively, for free-flowing information, individual empowerment, relationship networks, and organizational change that evolves organically.

Other key points to emerge from her work that relate to previous discussions include:

  • That in order to survive in a world of change and chaos (hypercompetition), companies will need to: accept chaos as an essential process by which natural systems, including companies themselves, renew and revitalize themselves: share information as the primary organizing force in an organization: develop the diversity of relationships to energize workplace teams: and embrace vision as an invisible field that will help to recreate workplaces.
  • In natural systems, order is not imposed externally (control systems), but develops naturally from within.
  • Chaos Theory teaches that organizations need to have agreement on what they are trying to achieve, and the values by which they operate.
  • Quantum Physics teaches that particles do not exist independently of their relationship to each other, and neither do people, who are the "waves of potential" moving through the space of organizations. Relationships are, therefore, the fabric of self-organizing teams, while information is the source of all change and the "life blood" of the organization (Kane, 1998).

Wheatley (1997) argues that the main implications arising from these key points are:

  • That in order to access the self-organizing capacity of people in organizations, leaders do not need to just step aside, but need to actively set the conditions that support self-organization. Practically, this means embracing the understanding that structures, plans, designs and accountabilities can emerge from the organization, and do not need to be imposed from above, as in the past. People need a deep sense of connection to what the organization is, and what it is trying to achieve, for the organization to have meaningful direction and to be maximally effective. Leaders, therefore, need to provide clear, consistent and honest attention to the identity of the organization, which shows up in actions, visions and relationships both inside and outside of the organization. When employees are clear about these issues, and there is real congruence at the core of the organization, people are free to respond well to customers, solve unexpected problems, and to be creative and innovative. This is exactly the kind of problem that was discussed above. Management will therefore have to find a solution to this paradox.
  • That in creating the conditions that support self-organization, a leader also creates an organization in which people trust and believe in each other, and therefore do not need to get into regulating and coercing behaviours. This results in employees with enormous commitment and creativity.

This new approach to organizations is a dramatic shift away from thinking of organizations in mechanistic terms, as collections of replaceable parts, where leadership seeks prediction and control. A paradigm shift like this can only take place successfully if the necessary tools and mechanisms are available to support the application of the fundamental insights, offered by the New Sciences, to the complex adaptive system, i.e. the " Organization ".

In particular, we are referring to the emergence of virtual technologies such as e-mail, fax, voice mail, teleconferencing etc...

An Example of the Interface between the 'New Sciences' and Virtual Management

Field Theory

A cornerstone of Wheatley's New Science thinking is Field Theory, which has developed to the point where Fields are thought of as the "the substance of the universe" (Wheatley: 1994:50).

Wheatley (1994: 50-57) believes that Field Theory offers insights into successful organizations, where organizational space is defined in terms of fields, "with employees as waves of energy, spreading out in the organization, growing in potential". She believes that concepts such as values, vision and ethics can be defined as fields which reach all corners of the organization and can provide a more subtle and effective form of order and control than traditional authority structures: so long as the "space" in an organization is filled with clear and coherent information that employees encounter on a daily basis.

Murphy (1998) discusses the concept of Vision and comes to the conclusion that Vision can be equated with a force field that permeates the whole organization:

"In practical terms, this means that the newly formed business will rapidly create and construct a language, a culture, and a belief and value system that are a derivative of the environment:

  1. as defined by the leader or founder,
  2. the social and ethical values of the society (the business environment), and
  3. any other force fields that interface or interact with the infant organisation."

It not only permeates the organization, but, represents the Paradigm Box, the Organizational Code of the Organization. And as such it is the single most controlling factor in the organization.

Wheatley's "new science" thinking encapsulates the very essence of the Third Wave Institute's definition of management in virtual organizations: processes, not people, are managed: vision is integral to the attainment of organizational goals: and acquiring appropriate human resources, and letting them function under conditions that support self-organization (telecommuting, e-mail, voice mail etc.) will result in a committed and creative team better suited to achieving the flexibility required to respond to external change in a post-bureaucratic era. Equally, the self-organizing nature of Wheatley's concepts dovetails neatly into the new technological environment, where people work largely independently of each other, and without the controlling aspects of either the central corporate head office or traditional hierarchy. Again, to achieve the flexibility required for continuous innovation, greater decentralization, less specialization, and looser controls will be required...

Quite simply, the organizational structure, control systems, management style, and interpersonal relationships conducive to the efficiencies required by the "Second Wave" are likely to only hinder the innovation and flexibility required by organizations in the "Third Wave". Effective management in this increasingly virtual environment requires that the principles of chaos, self-organization, Field Theory, and Quantum Physics be both understood and embraced, in order to facilitate such objectives as decentralized decision-making: team participation in strategy formulation: increased responsiveness to customer requirements: and greater flexibility in responding to marketplace disruptions.

Characteristics of the New Management Paradigm

Hanswerner Voss (1998), an independent management consultant living in Germany, wrote an article entitled 'Virtual Organisations, the future is now', in which he described the characteristics of virtual organisations. He stated that these organisations have five overarching characteristics in common:

  • They have a shared vision and goal, or, a common protocol of operation.
  • They cluster activities around their core competencies.
  • They work jointly in teams of core competence groups to implement their activities in one holistic approach throughout the value chain.
  • They process and distribute information in real time throughout the entire network, which allows them to make decisions and coordinate actions quickly.
  • They tend to delegate from the bottom up whenever economies of scale can be achieved, new conditions arise or specific competence is required for serving the needs of the whole group.

This highlights the fact that the golden threads that run through a virtual organization centre around vision, core competencies and speed of delivery.

A profound characteristic of the new management paradigm is the virtual workplace. Marc Wallace defines the virtual workplace as a space that is not bound by visual or physical proximity. It exists as a platform to conceive, produce, and deliver a virtual product or service. In this regard Mr. Wallace has identified three distinct approaches telecommuting, frontline and cyber link.

Anthony M Townsend (1998) adds another dimension to the discussion with the concept of the virtual team.

Townsend (1998) argues for virtual teams by stating that although modern organizations face a number of challenges in a competitive environment, the imperative to move from traditional face-to-face teams to virtual teams derives primarily from five specific factors, namely:

  1. The increased prevalence of flat or horizontal organizational structures.
  2. The emergence of environments that require inter-organizational co-operation.
  3. Changes in worker expectations of organizational participation.
  4. A continual shift from production to service/ knowledge work environments.
  5. The increasing globalization of trade and corporate activity.


The age of the virtual organization is fast becoming a reality. The implications of this have to be dealt with urgently in the new millennium, as the adoption of ever newer technologies and the emerging trends discussed earlier will continue to manifest at an exponential rate. What is also clear is that the traditional management framework is increasingly proving itself incapable of satisfactorily dealing with the new market reality: Conventional theories and practices no longer provide the necessary guidance and support for decision-making in a world of change, complexity and uncertainty. It is this, then, that is driving the move towards a new management paradigm, in terms of which the management function will be radically redefined to take emerging realities into consideration. If companies are to prosper - to be drivers of their industries - they will need to proactively embrace a new management philosophy that is cognizant of the dynamics of information science, accelerating change, a borderless world, the holistic approach, the New Sciences, as well as the growth of technology, and, in the words of Vernor Vinge,"the dawn of the Technological Singularity." (1993)


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