Introduction
In today’s e-business, context, technology, customers, competitors, and partners can change rapidly. Technology can become obsolete in the blink of an eye and customers can appear and disappear with a keystroke. There are practically no barriers to new entrants (competitors) in an e-business world. Likewise, e-business partnerships and virtual organizations become ephemeral and opportunistic in nature. This article explores the dynamics of the changing nature, process, and practice of business relationships and network form of organizations in the cyberspace. It also identifies and discusses a series of management issues raised in the processes of e-partnerships and virtual organizations.
Background
The virtual organization, which is actually a network form of organization, is a revolution in organizational design and has changed the definitions, boundaries, and forms of inter-organizational collaboration and partnerships. The network form of organizations is the defining business transformation of this generation (Hagel & Singer, 2000; Jin, 1999; Malone & Davidow, 1994). Cisco, for example, is a network of suppliers, contract manufacturers, assemblers, and other partners, which is connected through an intricate web of information technology. Seventy percent of Cisco’s product is outsourced to its e-partners through Cisco’s network (McShane & von Glinow, 2000).
As previously shown, virtual organizations rely on IT network and e-partnership. Theoretically, e-partnership refers to a partnership relying on electronic (information) technologies to communicate and interact amongst partners. In practice, the term e-partnership is mostly associated with e-commerce or e-business partnerships. It may take different forms and involve various partners from or between virtual enterprises and brick-and-mortar companies depending on the nature of e-business activities. It flourishes in particular in e-supply chains through adding electronic components to the business partnership across firms (O’Toole, 2003, Zhao, 2006). For example, in the manufacturing industry, the e-partners may include raw materials providers, component manufacturers, final assembly manufacturers, wholesalers, distributors, retailers, and customers (Cheng, Li, Love, & Irani, 2001). This supply chain may involve a number of hundreds or thousands of suppliers and distributors. The use of Internet and other electronic media and the introduction of inter-organizational information systems are constitutive to e-partnerships and lead to the growth of virtual organizations.
E-partnerships share some common characteristics with traditional inter-organizational partnerships (Segil, 2004). But they are different in many ways and thus require different strategies and structures to manage them. Bell (2001) and de Man, Stienstra, and Volberda (2002) studied the differences and found that e-partnerships are generally entrepreneurial and less planned in nature, must move at Web speed, require flexible network structure, and have a short lifespan.
E-partnerships as “ a new breed of online alliances are fast emerging as the result of an incredible amount of Internet business in recent years” (Trask, 2000, p. 46). Entering an e-partnership is no longer a soft option but a vital need for gaining a competitive advantage and customer satisfaction in the trend of economic globalization (by globalization it means an increasing trend of economic integration worldwide). On the other hand, globalization is pushing companies to build informal network organizations, such as virtual organizations, that are able to work in a faster, cheaper and more flexible way. E-partnerships and virtual organizations are products of the globalization and IT advancement over the past decade and they have fundamental synergy between them. They interrelate and interact with each other in this digital era.
Advantages
The greatest advantage of e-partnership and virtual organization lies in the fact that they eliminate the physical boundaries of organizations, and that cross-functional teams and organizations are able to operate and collaborate across space and time by communicating with each other via electronic channels. The Internet becomes the most important interface between participating organizations, teams, and individuals. E-partnerships and virtual organizations enable businesses to sell and deliver products and services across the world in a more efficient way in terms of speed and cost. Amazon. com, Priceline.com, and E*Trade are some of the successful e-businesses who have depended on, and maximized profits from, e-partnerships.
Other perceived benefits of e-partnerships and virtual organizations may include greater business opportunities, better integration of suppliers and vendors, better management information, lower operational costs, better market understanding and expanded geographical coverage (Da-manpour, 2001). E-partnerships and virtual organizations may also offer the opportunity of consolidating resources of all partners and organizational flexibility as other forms of inter-organizational partnerships and alliances do.
In this rapidly changing competitive landscape, few organizations can rely on their internal strengths only to gain a competitive advantage in national and/or international markets. Inter-organizational collaborations, alliances, joint ventures, partnering, and the like are gaining unprecedented momentum, regardless of their organizational and management structures and styles and communication channels. An organization’s resources are limited in one way or another. Forming a business e-partnership and taking a network form of organization is increasingly one of the most popular strategies available to an organization to take advantage of an Internet Highway on the one hand and share risks, capabilities, and revenue with partners on the other. The driving forces behind building an e-partnership and a virtual organization share a lot in common with those driving any other forms of inter-organizational collaborations. They include:
• To gain a competitive advantage or increase market share in national and/or global markets
• To share revenue and expand sales between merchant and partners
• To prevent competition loss
• To meet changing demands of customers and markets
• To gain core competencies from competitors (Dussauge & Garrette, 1999; Sierra, 1994; Trask, 2000)
Key Issues
However, like e-business and e-commerce, e-partnership is also facing a range of issues related to the use of Internet as well as the reliance on inter-organizational interfaces. The key issues identified are:
• Challenges and risks of e-partnerships and virtual organizations
• Productivity and revenue sharing in e-partnerships and virtual organizations
• Transferring and sharing core competencies between participating organizations
• Power disparity
• Quality and effectiveness of communication
Addressing each of these issues has posed a formidable task in front of e-managers of various kinds of inter-organizational collaboration through electronic technologies and e-network. The following discussion explores each of these issues in detail.
Challenges and Risks
On the technological side, companies that are involved in e-partnerships must participate in external business relationships by using computer interactions. This forces e-managers to re-engineer their IT strategies and resources and re-think their ways of communicating and doing business with e-partners in a virtual environment. Main issues to be considered are IT infrastructure and managers’ and operatives’ knowledge and skills associated with e-business.
On the human resources’ side, e-managers are surely confronting management complexities of making cooperation work. One of the biggest challenges is conflict and differences in organizational and country cultures and systems. Each organization has its own culture developed from its own particular experience, its own role and the way its owners or managers get things done (Hellard, 1995). In addition to the cultural differences at organizational level, multi-national e-partnerships encounter inevitably barriers caused by cultural differences between nations such as clashes between western and eastern cultures. Differences exist in systems including taxation systems, online intellectual property, and online trade and law. For example, EU member states must enact legislation to ensure that transfers of data outside their boundaries are allowed only to jurisdictions that can offer adequate protection of the data. The US believes that minimal domestic regulation would foster cross-border Internet trade (Damanpour, 2001). Managing the culture and system differences across organizations and across nations is one of the high agendas that challenge managers of e-partnerships and virtual organizations.
While the Internet and network organizations facilitate improved communication of data, information and knowledge, they give rise to issues and problems of privacy, data security, and intellectual property protection in the Internet. The information database created through Internet transactions may lead to legal disputes among e-partnerships over ownership of the IP and possible loss of the potential profit generated from the IP (Greif, 2000). Moreover, electronic research projects usually involve new technologies and innovative development, which creates a high level of technological, commercial, and legal risks for every organization involved.
Productivity and Revenue sharing
The primary aim of building e-partnerships and virtual organizations is to generate more profit and achieve the best business results through taking advantage of online resources and extensive e-network. Trask (2000, p. 46) considered that “a well-designed revenue-sharing program may be the best and fastest way to generate online business.” Revenue sharing becomes the most important issue in e-partnerships and virtual organizations when productivity increases and revenue goes up. The nature, timing, and amount of compensation (in the form of referral fees, royalty, and commission) together with the financial stability and honesty of commission reporting are core considerations of e-partners and crucial factors of success in sustaining e-partnerships.
Transferring and sharing core competencies
According to Lei, core competencies comprise a company’s specific and special knowledge, skills, and capabilities to stand out amongst competitors. They are intangible and an integrated part of a company’s intellectual capital and un-tradable asset rather than legally protected intellectual property (Lei, 1997, p. 211). Inter-organizational collaboration provides an opportunity for participating organizations to acquire and absorb the core competencies from each other (Couchman & Fulop, 2000). This opportunity is particularly valuable for innovative business such as e-business. However, the greatest barrier is competitive concerns over information leakage. This is an unavoidable dilemma facing e-partner-ships, which makes it difficult for e-partners to achieve the potential that IT technology can offer.
Power Disparity
It is normal that a decision-making body of inter-organizational collaboration and partnership is proportionately represented by participating organizations in terms of equity holdings in an online joint venture. It should be noted that due to difference in equity holdings, power disparity occurs and is likely to affect performance of inter-organizational collaboration, although division of power and responsibility has been clearly defined in legally binding agreements between e-partners.
Quality and Effectiveness of communication
Networking and communication play a key role particularly in coordinating and liaising inter-organizational collaboration. Expanding e-networks and achieving effective communication amongst e-partners are a top priority. Like culture and commitment, communication is a soft outcome of a total quality partnership approach and the foundation for inter-organizational collaboration (Aggarwal & Zairi, 1998; Hellard, 1995; Rounthwaite & Shell, 1995). Effective networking and communication help to eliminate barriers to collaboration. Therefore, continuous improvement of quality and effectiveness of communication amongst partners is another key issue in the agenda of e-partnerships and virtual organizations.
options
While sufficient support of IT infrastructure and resources are definitely important to successful e-partnerships and virtual organizations, reducing potential financial, commercial, and legal risks and effectively dealing with human and cultural factors exceed the complexities of technical setup and support in building e-partnerships and virtual organizations. Organizational culture and human resources are increasingly becoming important sources of competitive advantage, as they are difficult for competitors to imitate. How to foster a robust culture and capitalize on the core competence derived from e-partnerships is a crucial and tough issue for managers. Other critical success factors for e-partnerships and virtual organizations include:
• Level of accessibility, security, and compatibility of inter-organizational information systems
• Level of traffic in collaborative e-commerce activities
• Level of customer service and e-partner support service
• Level of transferring and sharing information and knowledge between e-partners
• Building and sustaining an effective virtual network structure amongst e-partners
• Level of individual and organizational commitment to e-partnerships
• Level of mutual trust, understanding, respect, and openness
• Level of corporate and business ethics and integrity
• Level of credibility of e-partners in relation to financial situation and business experience
• Level of mutual benefit through revenue sharing
• Effectiveness and efficiency of real-time commission reporting system
• Level of performance and productivity of e-partners
• Actively pursuing and sharing core competencies
• Willingness to share power and empower amongst e-partners
• Quality and effective networking and continuous improvement of communication (Singh & Byrne, 2005)
Achieving the best collaboration among e-partners requires more than tangible resources like IT infrastructure and support. Successful e-partnership needs a high level of intangible commitment and efforts to understand the needs and values of e-partners and customers. By resorting to a total quality partnership approach, it means that business ethics, integrity, honesty, trust, and sharing are required of e-managers of inter-organizational entities at the top and of the individuals and teams throughout the entire virtual organization (Aggarwal et al., 1998; Hellard, 1995; Rounthwaite et al., 1995). Disputes and conflicts caused by culture and system differences like those illustrated in this article could be reduced if e-partners could accept the differences and maintain a flexible and realistic attitude towards the differences.
future trends
“The world has finally become a global village, not just in rhetoric, but in reality” (Hennessey, 2000, p.34). In today’s corporate world, it will be more difficult for businesses to survive withoutjoining an e-partnership and taking advantage of the Internet. The fast expansion of Amazon.com, travel. com, and the like through e-partnerships, online syndicates, and e-networks and their business success reinforce the importance of online strategic alliance. Corporate e-partnerships and network-based organizations will be a crucial factor and play a key role in the future development of online business activities. The future trends will be characterized by:
• More mature (rather than experimental) nature of e-commerce and e-business practices in terms of the scope, quality and credibility of online customer services and products
• More needs for devising and popularizing e-supply chains due to the needs for integrating the flow of information with the flow of goods (Kotzab, Skjoldager, & Vinum, 2003; van Hoek, 2001)
• Greater monopoly of the flow of e-commerce and e-business by bigger online syndicates like Amazon. com through building extensive online alliances with online retailers and suppliers (Werbach, 2000)
• More brick-and-mortar companies moving online to expand their business scope and capitalize on the abundance of the Internet
• Greater reliance on joint efforts across nations in online legislation to protect IP, security, and privacy of e-commerce and e-business
• Greater challenge for dot.com industries to achieve sustainability, due to a more uncertain economic environment and the increasing complexities of new technologies and the more globalized economy
conclusion
Today’s complex and volatile business world calls for changes and alternatives to old and conventional paradigm of organizational design and new ways of doing business with others. E-business becomes one of the most important forces shaping today’s business. Virtual corporations and e-partnerships become increasingly popular in the perception of managers and in business operations. In such circumstances, it is important that e-business managers have an insightful knowledge and are well prepared to deal with the complexities of e-partnerships and virtual organizations. This article provides a better understanding of the crucial issues in cross-firm business processes and inter-organizational partnerships in the cyberspace.
Running inter-organizational partnerships implies multiplication of decision-making bodies from each participating organization and potential clash of interest and values amongst participants. As illustrated in this article, total quality partnership embodies the fundamental principles for managing collaborative partnerships including e-part-nerships and can be developed and extended to help inter-organizational collaboration to achieve desired outcomes. However, managing e-partnership and virtual organization is more complex than managing intra-organizational collaboration and collaboration between brick-and-mortar companies due to the IT issues, human and cultural issues, and inter-organizational partnership issues as discussed in the article. Failure to consider the complexities of any of these issues will lead to a divorce of e-partnerships and collapse of virtual organizations.
KEY TERMs
Brick-and-Mortar Organization: An organization located or serving customers in a physical facility as opposed to a virtual organization.
E-Business (Electronic Business): A comprehensive term used to describe the way an organization interacts with its key constituencies including employees, managers, customers, suppliers and partners through electronic technologies. It has a broader connotation than e-commerce because e-commerce is limited to business exchanges or transaction over the Internet only.
E-Partnership: A partnership relying on electronic (information) technologies to communicate and interact amongst partners. It is mostly associated with e-commerce or e-business partnerships.
E-Supply Chain: The physical dimension of e-business with the role of achieving base level of operational performance in the physical sphere (for more detail see van Hoek, 2001)
Intellectual Property (IP): A product of the intellect (intangible property) that has commercial value such as patents, trademarks, copyrights, etc.
Online Syndicate: Association of firms with a common interest formed to engage in e-business. Syndication has become an important e-business strategy of many companies.
Real Time: In the context of e-commerce, a real-time commission reporting system refers to a system in which a commission request is processed within milliseconds so that a commission report is available virtually immediately to an online salesperson.
Virtual Organization: A network form of organization that operates across space, time and organizational boundaries through an intricate Web of information technology.
