Research, Reports and Articles
Business Revolution: The Central Role of Virtual Companies
Ingrid Fernandes
Mar 16, 2021
- Strategy
Research, Reports and Articles
Business Revolution: The Central Role of Virtual Companies
Ingrid Fernandes
Mar 16, 2021
- Strategy
Exactly a year after the world went into lockdown due to Covid-19 restrictions, there is no doubt that businesses – no matter their size or industry – have had to adjust its way of operating to survive. From endless Zoom meetings to Telemedicine, organizations were forced to go virtual and think outside the box to adapt to the “new normal” [3]. Unquestionably, with vaccines being a reality in the 1st quarter of 2021, workers are finally returning to the office. A survey conducted by PwC [1] with 133 U.S. executives between November and December 2020, indicates that by summertime, most organizations will be heading toward a hybrid model of operation, in which employees rotate between working remotely and going into the office. However, is it still worth having a bricks-and-mortar business? For some companies, reshaping into a virtual business structure has been a reality way before the pandemic.
These businesses are known as Virtual Companies. This type of organizational structure is characterized by a few number of employees, who are then supported by an additional network of independent contractors located throughout the country or the world that join together to produce a service or product [2]. Because the term “Virtual” is often associated with “Virtual Teams”, the definition of Virtual Companies is often misinterpreted. While in a Virtual Team you also work remotely and join a group of co-workers to drive a unified purpose, you will still answer to the same organization/manager. In a Virtual Company though, you outsource third-party collaborators from different business areas [2]. They will work for your company, but they are not your employees. Since such partnership is often temporary with a purpose motivated by specific market opportunities, once the goal has been accomplished, partners may move on to new partnerships and a Virtual Company may start looking for new opportunities and alliances [2].
The success of this type of business structure will vary according to the industry, strategy, market landscape, company culture, and other variables that assemble a business. Financially speaking, a company that steps away from the “brick-and-mortar” arrangement can potentially save money in operating capital, infrastructure, R&D costs, office space, recruiting costs, supplies, insurance, and others [3]. Also, not being restricted to hiring people only from nearby geographic location gives executives the power to deploy experts and stakeholders from specific areas of interest, which could effectively improve processes, boost research & development, and ensure quality [3]. Nike for example, is the largest sneakers company in the world, yet the number of its direct employees is considered small, compared to its magnitude. The reason for that is because for decades Nike has outsourced almost all their production to partners in other countries, while keeping a core-team in the United States responsible for design and marketing the brand and its products [5]. Emerging start-up and small Pharmaceutical companies are another good example of organizations that have reshaped their structure to allow for more flexibility, development, and efficiency by outsourcing functional departments such as sales and marketing, finance, commercial operations, regulatory affairs, medical affairs, manufacturing, legal, and others [4].
Finally, it is crucial to understand that each company is unique, thus it is difficult to determine if the gains of becoming a Virtual Company outweigh the challenges that such structure offers. Truth is, Virtual Organizations have been around way before the Coronavirus pandemic and its wave of remote work. William Davidow and Michael Malone, authors of The Virtual Corporation believe that this type of business structure will indeed be central to the new business revolution [2]. In our next article, we will focus on the Pharmaceutical sector, and consider how biotech companies have embraced the virtual approach in its core management to gain greater scalability and breadth to its business operations.