In the virtual organization model, most activities are outsourced or contracted so that a lot of necessary work is performed outside the boundary of the company. It involves the wide usage of the Internet, computer networks and collaboration software to get these processes done, allowing the organization to focus mainly on its core activities.
The main problem with the virtual organization is that difficult to control human errors and to identify rule breakers. This could lead to disastrous consequences that could tarnish the reputation of mother organization. Nike suffered a blow to its reputation when news came out of its supply chain disaster. Likewise, the Rana Plaza disaster and Boeing’s experience with the 787 Dreamliner are typical examples of the challenges posed by outsourcing.
Other outsourcing issues that virtual organizations face are
- Difficulty in controlling information overload: Virtual organizations have to manage information being shared within the team and being received from outside the team. This can lead to a chaotic situation which team members may find difficulty in controlling.
- Loss of Critical Skills: The organization will gradually lose its ability to operate without suppliers and may lose much of its critical skills.
- Risk of exposure of copyrighted or secret information and technologies: With outsourcing, there will be considerable risk of hacking secret information. Also, there will be challenge of exposing the confidential information of companies’ customers and, in some instances, patients (in case of healthcare) when outsourcing business processes.
- Difficulty in working with external partners: Virtual organizations have to work across different organizational boundaries and have to engage people from different cultures, commercial interests and perspectives. They would need to update their professional skills to cope with outsiders.
- Employees do not identify strongly with organization: Evaluating virtual organizations and measuring the performance of employees would be rather difficult. Strong cooperation is needed for building and strengthening virtual teams with members from two or more companies.
Unreliable new technologies and lack of synergy due to absence of face to face interaction are some other issues associated with virtual organization outsourcing.
Addressing the challenges of Supply Chain Outsourcing
- Getting suppliers or service providers to adhere to the mother organization’s code of conduct is one way of controlling outsourced operations. Take the case of Nike. The company has no control over the inventory since there are too many suppliers. Nike addressed the issue by introducing a new code of conduct and frequently conducting trainings for its suppliers on how to adhere to its standards.
- There should be an effective mechanism to manage processes related to quality, such as change control, complaint handling, and corrective actions as well as supplier performance.
- A risk management process has to be implemented to identify and mitigate high-risk scenarios in the supply chain such as acceptable levels of compliance, measure risk levels from suppliers, and real-time monitoring of supplier risk.
Businesses that outsource should monitor their suppliers, as success or failure of any industry greatly depends on the components it chooses to outsource. The nature of problems associated with business process outsourcing also differs across nations and industries. To address the challenges of outsourcing, it is essential to have a systematic way of thinking, as when to outsource, when not to outsource, and how to carefully monitor the partners on whom the organization’s virtual model depends. As too much of control can stifle innovation and entrepreneurship, the virtual corporation should have a system that allows freedom within a definitive structure.
At the same time, authoritative virtual corporations will never leave responsibility for work conditions in the hands of their partners or allow them to make decisions on quality control. This kind of vigilance will help virtual corporations anticipate crises instead of responding to them.