Virtual vs. Integrated Organizations: Risks and Ideal Organizational Form

Defining Virtual and Integrated Organizations

Questions: Question 1: Define, compare, and contrast virtual to integrated organizations.  What additional risks are there to virtual organizations relative to integrated companies? Please provide examples of the degree of "virtual" versus "integrated" you might have witnessed in your current companies.  Make a recommendation of what you feel an ideal organizational form might be. My Post: Virtual organizations refer to a flexible network of independent entities that are associated by telecommunication and computing technologies to share skills, access to expertise and knowledge in a modern way (Chesbrough & Teece, 1998). On the other hand, integrated organizations are those that follow a structure where the final goal is accomplished by means of interaction of various departments or units. Then again each of these units aim at lower goals and are connected by means of clear line of command. Virtual companies well harness the power of the market forces as compared to the integrated ones (Chesbrough & Teece, 1998). Incentives schemes at virtual firms make these powerful but at the same time make them vulnerable to various risks as well. Outsourcing is another factor in virtual companies that is not the case in integrated ones. This that the virtual companies depend highly on their partners, suppliers and other such outside companies makes them vulnerable to risks unlike the integrated ones. The integrated nature is what everybody was familiar with till the emergence of COVID. The company I am working for is integrated in its approach rather than virtual. “Integrated” degree is felt when formal communication is more preferred and there is no flexibility when it comes to power. “Virtual degree” is felt when the organization is found to be goal oriented as well as customer oriented. I would prefer a company which would have 60% characteristics of integrated firms and 40% characteristics of virtual firms. That is a mixture of both will be better than aligning fully toward one single approach. Reply to Indreya Post below: A virtual organization is one in which many of their activities are outsourced to an alliance of different partners, forming a type of collaborative network to meet the needs of its customers. Virtual organizations are decentralized because they do not depend on their internal organization to provide goods and services. They are characterized by their responsiveness and perceived incentives. These two things give them an advantage. In this model, virtual companies can take advantage of the power of buyers. This provides the flexibility that virtual organizations enjoy. They have the flexibility to choose from additional partners (power of buyers). Virtual organizations can also quickly evaluate available technical resources by offering market-based incentives such as retirement and stock options, hiring and referral bonuses, schedule flexibility, as well as paid time off options. Due to their very flexible nature, they are primed for innovation. Virtual companies also find advantages by coordinating their business through the marketplace. Virtual companies gain advantages when they use power of market forces to develop, manufacture, market, distribute and support their offerings in ways that integrated companies can’t duplicate. Virtual companies save other companies time, money and resources. While virtual companies have many benefits, they also have some disadvantages. I believe that companies should not commit to being just virtual but mix some tendencies of integrated businesses. In essence, virtual organizations are decentralized, meaning that they maintain the flexibility to choose their suppliers as it benefits them. But questions have risen about the risk involved in choosing to cooperate with alliances rather than cultivating and promoting their own capabilities. According to the authors, Chesbrough & Teece, coordination between partners can become precarious when dealing with incentives as a virtual organization. When dealing with the marketplace each party inherently makes choices based on the nature of the innovation in question and the risks involved. For example, when Microsoft developed an operating system for IBM called the OS/2. Microsoft created the system for IBM but they continued to sell an alternative version in direct competition with OS/2. This forced IBM to leave the personal computer business. This is where managers must decide how to organize for innovation because a trade-off between incentive and control has been created. Managers must find the right degree of centralization because as incentives to take risks decreases, the ability to settle conflicts and coordinate activities increases. According to Chesbrough & Teece (1996) virtual companies that have survived long term “have carefully nurtured and guarded the internal capabilities that provide the essential underpinnings of competitive advantage. And they invest considerable resources to maintain and extend their core competencies internally” (p.132). These competencies are needed in their strategic positioning so that they can survive long term. Successful virtual companies are at the center of networks that are far from egalitarian (Chesbrough & Teece, 1996). Companies that exemplify this are Nike who have Asian manufactures but control their designs and marketing efforts. In contrast to virtual drawbacks Chesbrough & Teece (1996) says, "Integrated, centralized companies do not generally reward people for taking risks, but they do have established processes for settling conflicts and coordinating all the activities that are necessary for innovation." (p 128) Alliances in an integrated company can achieve coordination like that of a virtual company, but over time members of the alliance may diverge when attempting to enhance their positions.  I currently work at Baptist Memorial Hospital and they are definitely a mix of virtual and integrated. On the integrated spectrum, Baptist hires American Esoteric Laboratories (AEL), Morrison Co, and Cobra to provide the hospital with lab staffing, cafeteria staffing/meals, and security. There are many services offered in hospitals that are outsourced that some may not be aware of. On the virtual spectrum, Baptist as started using Ipads to get e-signatures from patients on all forms/documentations. This was a plan that they were already working on, but when COVID hit the plan came into action a lot quicker. This helped reduce the flow of hard copies and cut back on manually filing papers. Another big virtual component that is starting to evolve in health care is telehealth platforms. Anytime we have a patient come through the ER exhibiting CVA symptoms we use a screen so they can talk to a neurologist. The hospital doesn't have any neurologists on call. So, the patient has to speak with one via live video.   There are many successful virtual companies, but there are even more failures. After many years of studying the relationship between organization and innovation, it is believed that the virtues of being virtual have been oversold. The new conventional wisdom ignores the distinctive role that large integrated companies can play in the innovation process. If an organization rushes to form alliances instead of nurturing and guarding their own capabilities, they risk their future.  I believe that having characteristics of both integrated and virtual organizations would be best for a company. This allows them to flexibly innovate by outsourcing but also have the control of operating within the company. Integrated models seem to have great structure for innovation. They just lack flexibility and incentive to do what virtual models do.  Reply to Mumtaz post below: Introduction The desire for competitive advantage in the open market has compelled many business organizations to focus on their core competencies while exploring additional alliances, skills, and resources to fulfill the business opportunities. Therefore, the changing business environment and diverse customer needs compels business market to engage in traditional integrated and nontraditional virtual organizations. The primary objective of this discussion post is to define and compare between integrated and virtual organizations and examine the potential risks to virtual organizations relative to integrated organizations. Besides, the discussion will highlight specific examples of virtual and integrated companies as well as provide recommendations on what the ideal organizations should entail. Definition of virtual and integrated organizations When defining the above types of organizations, it is important to note that current business’s decision is based on the innovation and efficiency. Thus, careful consideration must be given to fundamental and inherent risks expected when conducting business under each specific business model before committing to a certain model (Alawamleh & Popplewell, 2011). In this regard, a virtual organization refers to a business framework where most organizational activities are outsourced from diverse partners, thereby creating a kind of collaborative business network to meet the customer's needs. On the other hand, an integrated organization refers to one that coordinates and controls the production process to meet the customers' needs. Advantages and disadvantages of virtual and integrated organizations Virtual companies are perceived to have many advantages. Alawamleh & Popplewell, 2011) reveals that such organizations are decentralized because they do not rely on internal production to produce goods and services. Furthermore, such companies are characterized by their perceived incentives and responsiveness. Therefore, virtual organizations can take advantage of purchasing power while their alliances can take advantage of the supply power. This promotes the kind of flexibility the majority of virtual organizations enjoy. If they are dissatisfied with a certain partner in the alliance, they are flexible in selecting another partner (powers of buyers). While virtual organizations pride themselves on many benefits, there are fundamental disadvantages associated with this model. Chesbrough & Teece (1996) alludes that the overreliance of virtual companies on outsourced partners is a big shortcoming. This can contribute to the loss of upward mobility within the company, resulting in a talent gap and loss of technical ability, among other key attributes that define organizational culture. In contrast to the shortcomings of virtual organizations, Chesbrough & Teece (1996) argues that integrated organization under the scope and size can pursue new and higher standards by deciding to adopt a different technology for its goods and services. In comparison to the drawbacks of virtual organizations, scholars agree that integrated companies do not recognize and reward their employees for the risks. However, they have a well-established innovative process for dealing with conflicts and coordinating innovative activities (Midgley & Lindhult, n.d).  Systematic vs. autonomous innovation According to Chesbrough & Teece, companies must choose to pursue virtual or integrated models based on the specific type of innovation. The two primary types of innovations are autonomous and systematic. Chesbrough & Teece (1996) reveal that some innovations are autonomous because they can be independently pursued from other alternative innovations (Bahadur & Doczi, 2016). Alternatively, some innovations are systematic because their benefits are fundamentally realized in conjunction with other relative and complementary innovations. An example of autonomous innovation is a turbocharger acquiring additional horsepower without being redesigned. In contrast, an example of systematic power is Polaroid being demanded to create a new camera and film technology to profit from instant filming.   Question 2:  . Describe the organizational form appropriate for autonomous innovations suggesting in the readings.  Do you agree or disagree with their assertions?  Why or why not?  For an organization focused on a product leadership strategy, which organizational form is generally most appropriate and why?  Using an example of one particular initiative you have seen attempted in your workplace of a product leadership strategy, offer your thoughts on the project outcome as well as whether or not the organization form or IT strategy helped or hindered the project. My Post:  The organizational form that has been preferred for autonomous innovations is virtual. I agree with the assertions because for autonomous innovations there is a need to outsources resources be it human resource or materialistic resource that is supported more by the virtual form of organization. For product leadership strategy, integrated form of organization is most appropriate as this is supportive of the feature of strong leadership and cross-functional teams. In support of product leadership strategy, I enhanced the process of recruitment of product team members. Previously, it was done just on the basis of the qualification and experience of an individual, but now there is three a step process starting from testing of theoretical knowledge, practical knowledge, and lastly critical thinking skills. This initiative was certainly a success as many good experts have been hired and company is being benefitted. (Indreya replied to my post above – This may help better the answer) You have a good answer here Alicia. You answered the question for the most part, but I would try to go a little more in depth and explain the difference between autonomous and systemic innovations and how an organization can benefit from one or the other. I also would elaborate a little more on the example to help one better understand the topic. Examples are a good way to tie the ideas into today's world and help the reader interpret what they just read. Overall, good answer though.  Reply to Ashley post below: As technology constantly innovates, firms must determine ways to sustain competition. Chesbrough & Teece differentiate between two types of innovations – systemic and autonomous. Autonomous innovations can be pursued independently in contrast to systemic innovations, which are only in conjunction with related, complementary innovations. Organizations should decide which organizational structure they embody before moving forward with innovation. Gilbert, Eyring, and Foster argue that organizations must transform internally by determining their most vital competitive advantage to transformational innovation (Gilbert, Eyring, & Foster, 2012). Firms must understand what parts of their value chain they lead their industries and focus on optimizing that resource and providing value. Firms focused on product leadership strategies should house their innovations internally OR by acquiring license agreements and alliances. Startups are aiming at market leaders, so companies must focus on producing innovations faster. Johnson and Johnson (J&J) exemplify all attributes of a market leader and resilience to market disruptions. J&J streamlines its primary activities, including marketing, to focus on innovation and product development. This initiative allows J&J to compete with rivals by bringing new products to market while maintaining core competencies internally. I agree with this process because it does not put J&J at risk and does not alter their course of business. Question: 3 View the following videos.  Why do you think I hope that you learned from them?  How are they related to our topics this week?  Do you believe that what the learning points here are applicable to your current organization, why or why not?  Why would it be challenging to embrace what the videos suggest and what does this tell us about the challenge in being innovative? 1. oDaymond John: Failure is a necessary process oVimeo CEO: Failure is essential to success oSpanx founder: My dad encouraged me to fail My Response: The thing which I learned from the videos is that failing is acceptable, but not making any attempts or not putting any effort to do a thing is not. It is evident from the case studies provided that each one of them started from zero and at some point felt that they should quit but pushing themselves to get ahead of that point is what helped them ("Rise and Grind | Daymond John", 2021). The extra effort they put in, the urge to be known made them think out of the box and thus the innovative products developed. The learnings from the video are highly related to the topics this week as we are finding out how innovation can be done in any business. The key is taking risks, may be a project can fail but certainly or eventually it will get to somewhere. It is applicable for the organization I am working in but a setback is the risk that comes with being innovative. The individuals in the video are all alone, took decisions all by themselves but within an organization this cannot be done. The challenging part of being innovative is taking risks. Reply to Monica post below: The lesson that I learned from watching all of the video would be that failure is not only vital but also common. Many individuals have a fear of failure, which also very common. However, having a fear may limit how one executes a specific task or how well the task could have been performed. Although failure is something that many individuals are scared to face, there is much to learn from them. For example if a specific business strategy fails within the organization, you are able to rethink the strategy to find the perfect one that works. Without the aspect of failure, the organization would have not been able to find the strategy that works best. In addition, failure within the organization can aid them into developing critical thinking skills and becoming innovated; this is because the company will have to think in a creative manner to solve the problems that have risen. Therefore, if the company was going to face another inconvenience, they will be able to overcome it more efficiently because they will have the critical thinking skills.  Question 4:  Summarize Gilbert's suggestions on how organizations may build resilience.  How would you integrate Gilbert's thoughts with other readings from this and last week? What additional suggestions would you make, for companies looking to deal with disruptive change? My Response: As per Gilbert, organizations these days are at a rush to get innovative. But it is suggested that major transformations are required to be two different efforts taking place in parallel. One should be repositioning the core business and adapting the current business model and second should be creating a separate disruptive business (Coutu, 2002). Then again, to make both these transformations there is a need to come up with a whole new organizational process that is “capabilities exchange” (Gilbert, Eyring & Foster, 2012). Other readings of this week and previous week related highly to innovation and organizational form thus can be related to Gilbert’s thoughts. When going for innovation firms should consider the content that is presented by Gilbert. The additional change that I would suggest is focusing more on research and development when going for disruptive changes. Reply to Indreya Post: At some point, most companies will need to reinvent themselves in response to disruptive market shifts, technologies, or start-ups. But can a new business model quickly replace all the revenue an incumbent has lost to market upheaval? Gilbert proposed that companies under assault pursue two distinct but parallel efforts: “Transformation A” should reposition the core business, adapting it to the altered environment. The goal is to find the strongest competitive advantage your current model can sustain in the disrupted marketplace. “Transformation B” should launch a separate, disruptive business that will be the source of future growth. This approach allows a company to realize their fullest growth potential and the most value from its current assets and advantages, while giving the new initiative the time it needs to grow. In each instance, a key to making the dual transformations work is the establishment of a “capabilities exchange,” which allows both efforts to share resources without altering the mission or operations of either. Dividing the effort in two allows leaders to develop a new strategy for the core that doesn’t need to make up for all the business lost to disruption. It also gives the innovative new operation the time it needs to grow. For dual transformation to work, each organization must operate as if the future of the company depended on it alone. What one transformation effort can't accomplish alone, two together have a better chance of achieving. According to Scott D. Anthony, there are four interlocking strategies for successfully navigating dual transformation: spend more time at the periphery, change the way you approach problems, recognize the early warning signs of disruptive change, and stay grounded while avoiding stagnation. The places at the edge of one's industry are considered to be the peripheral zones untouched by traditional business models. It is important to focus on people who engage your business in ways that may seem incomprehensible to you, which makes their insight invaluable. When going about a problem, companies should first gather data around the problem, analyze it, make a decision, and lastly execute the decision. Scott says that, "One of the challenges in preparing for disruptive change is that the data only becomes conclusive when it’s too late to do anything about it.” Any time you see a competitor doing something different you should pay close attention. Also it's important for organizations to watch their financial statements. If “your revenue growth starts to slow and your profits start to increase,” the plates may be shifting underneath your feet. Question 5: What we are looking to understand is to apply what we have learned and better understand the potential management struggle to deal with a disruptive change caused by a technological innovation.  This could be because of the nature of the industry changing, but also because they were overly focused on individual capabilities rather than organizational capabilities.  I am giving you a lot of leeway with this question, but I am looking forward to working with you on it.  For the scenario below about disruptive change in the Diamond industry, view the starter material, 1) do some additional research and 2) address who/what the key stakeholders might be, 3) what the potential impacts of the technology are, 4) how will the stakeholders be impacted, and 5) how might they best manage these disruptive technologies (hint - think about the strategies we've looked at in the last 2 weeks). The New Diamond Age- (Links to an external site.)Original Wired article (I read this many years ago, it's a long read.  If you are time pressed, come back to it and read the others instead). Diamonds Disrupted: How Man-Made Diamonds Will Disrupt The Mined-Diamond Industry (Links to an external site.)-Article from last year (are diamonds forever?) Diamonds Are Bullshit (Links to an external site.)-Sorry for the title, but it's a fair point about the marketing aspects of diamonds My Response: The shift from real diamonds to man-made diamonds can be attributed to the advancements in technology. This technological shift hit many stakeholders of the diamond market such as the ones in the industry, putting effort in real diamonds and customers as well who got confused as to which should they buy (The New Diamond Age, 2021). This is something disruptive affecting the market as a whole but can be well handled if product leadership strategy is adhered to. Reply to Ashley Post below: Cutting-edge technology is affecting the traditional diamond trade industry. Key stakeholders affected are retailers who profit off the diamonds. Artificial intelligence and automation are key influencers leading the disruption of the diamond trade.  To best manage these technologies, organizations need to innovate a new and more efficient way of supplying diamonds to compete with the lab-grown industry. Question 6: Summarize and discuss what digital transformation is about.  What are companies attempting and why, what are the successes and failures and why?  If you were to place digital transformation and explain it using the competitive strategies we have covered and the readings from this week, is digital transformation really something new, and what might be enduring about the concept?  For this question, I'm hoping that you can analyze and critique the topic at a high level. My Response: Digital transformation refers to the adoption of digital technology to bring in improvement in business processes either by creating new or by making modifications. Companies are attempting to embark on digital transformation to counter the potential for disruption from incumbents and startups (Christensen & Overdorf, 2000). Failures when going for digital transformation are due to poor leadership, no connection between IT and the business, lagging in employee engagement and resilience (Tarba et al., 2019). Successes are modern technology to drive the data oriented businesses of today. Yes, digital transformation is something new and the ease with which this helps to carry out business operations is something that is enduring about the concept. With digital transformation, communication gets faster and easier, networking gets better, productivity is enhanced, workload gets reduced and so on. Reply to Indreya post below: Digital transformation is a foundational change in how an organization delivers value to its customers. It enhances customer value, manages risk, and uncovers new revenue opportunities. It marks a radical rethinking of how an organization uses technology, people and processes to fundamentally change business performance. It requires cross-departmental collaboration in pairing business-focused philosophies with rapid application development models. Companies often embark on digital transformations to counter the potential for disruption from incumbents and startups. Companies are seeking to accelerate innovation in fear of being outflanked by competitors. They are experimenting with new digital services and capabilities to augment existing offerings or to slide into adjacent markets. There are a few steps that companies must follow to successful overcome digital transformations: focus on a clear set of objectives, be bold when setting the scope, embrace adaptive design, and adopt agile execution. Successful digital transformation requires preemptive changes rather than reacting to competitive pressures or disruptors.  Digital transformations are failing for several reasons, including poor leadership, disconnects between IT and the business, lagging employee engagement and substandard operations. Digital transformations fail when companies are obsessed with big bang change, focus on cost cutting as the business driver, and fail to loop in the business. Tyagarajan says, "Approaching digital transformation as a technology journey of the business is a recipe for failure." Most organizations that fail focus too narrowly on adopting a new technology rather than first identifying the challenge they'd like to overcome, defining the outcome they seek, and searching out and deploying the technologies and process changes. Digital laggards suffer more form resource limitation and a lack of executive support. The companies that excel at digital transformation are the ones that are deciding on a critical area to tackle and then experimenting. Digital winners have a strategy for taking advantage of disruptive technologies and more-advanced technologies. They are more open to getting help from outside partners and they measure their progress.  High-tech companies seem to reap the greatest benefits from investments in digital transformation, possibly because technology is embedded in their DNA. Most digital winners are more likely to have a formal digital strategy and embrace advanced digital technologies. Digital failures are less likely to do these things. The most common reason for failure is a siloed mentality among management and the workforce. Followed by devoting insufficient resources and a lack of internal expertise to take full advantage of the technology. There are a few things that the failures can work on to help them dig themselves out of the hole: define desired outcomes, ensure that executive and middle management are aligned, assign someone to take ownership of digital transformation outcomes, provide more training at all levels of the workforce, rethink organizational structure, shed old ways of thinking and past business models, bring in fresh talent, and engage suppliers and customers as co-creators. Positive outcomes from the use of digital technologies correlate with business success. Skill sets and culture are important to successful digital transformations. All in all, companies that succeed at digital transformations are those that develop a digital strategy, ensure support across all levels of management, build up their internal skill set, and partner with suppliers, customers, and consultants to bring in fresh ideas and expertise.