DIFFERENT CONCEPTUAL APPROACHES TO VIRTUAL ORGANIZATION

Reima Suomi Turku School of Economics and Business Administration

INTRODUCTION Telework runs the risk of ending up to be an unfulfilled dream of information technology enthusiasts, just as those concepts of paperless office or management information system as interpreted in the early 1960s, to but the discussion in a broad context. Academics eagerly pinpoint the organizational problems of implementing telework in practical organizations, which, no doubt, are very challenging. This chapter acknowledges that the slow adoption of telework may too be a result of the unstandardized and immature concept development in the field. Our task here is not to go deep into the vocabulary and taxonomy on telework. In the title the term virtual organization is used, with the message that modern working relationships emerge in various forms. In the chapter we anyway use the wording telework. Virtual organization is a wide concept, whereas telework binds itself more intensively to the relationship between a worker and his organizations, which is the main focus of our chapter. The chapter begins with a discussion on two central prequisities for successful adoption of any concept: standardization and social innovation. An innovation can spread when it is standardized enough, and when its acceptance carries no social risk. Why these are missing in the case of telework is discussed. Unfortunately, this chapter can neither produce the grand theory of telework of virtual organization. What we can try to do is introducing five different approaches visible in economics and organizational sciences and used in information systems science to understand organizational implementations of information technology: 1 transaction cost approach 2 agency theory 3 resource-based theory 4 process thinking 5 organizational learning Our main research question is: Which issues in popular management approaches favor and inhibit telework application in organizations? For each of these approaches, the topics of telework they underline and ignore or neglect are discussed. The strenghts and weaknesses of the theories are sorted out. For each approach, examples of its practical impact on telework practice and research are given.

A central topic in the research of the author on telework has been that of management resistance to the issue (Suomi-Pekkola 1998). I have tried to find reasons for this resistance from several directions: from hostile organizational cultures towards telework (Suomi-Pekkola 1999), from the non-cooperative relationship between employees and their managers (Suomi 1999), and even from the limited mind-sets of managers (Suomi & al 1998). In this chapter this mission is continued. Thereafter we however turn the blaming finger to the research and consultant community. Maybe there is something wrong or missing with the frameworks researchers and the academic community offer for practicians within telework. Maybe the theories and frameworks used show telework in a negative light. For this reason, we study five typical approaches to organizational life usually found in management literature, and discuss on their relation to telework. Our research question is as follows: Which issues in popular management approaches favor and inhibit telework application in organizations? We take up the following popular management approaches: 1 transaction cost approach 2 agency theory 3 resource-based theory 4 process thinking 5 organizational learning The selection of these approaches is of course random and subjective. We however believe that each of the selected approaches has an established position in the thinking patterns of managers and reseachers has multiple areas of application is established on sound scientific research possesses normative implications pracical in telework management. In the conclusions of the chapter we close the circle: Is telework maybe not becoming popular because of too much or little of standardization of management thinking? Are managers maybe not innovative enough, especially as it comes to social innovation, because or this? Our result to the question remains open: current management literature is so rich that depending on the desired viewpoint, one can find topics from there that either support or reject telework, depending on the needs of the interpreter.

TELEWORK AND STANDARDIZATION AS SOCIAL INNOVATIONS Telework has remainded a marginal phenomenon in the labor market. The reasons are many and intertwined. Here we conduct a short discussion on two topics that are critical in the adoption of any innovation: standardization and social innovation. Innovation and standardization are central topics in the diffusion of any innovation (Vervest 1987, King & al 1994). The concepts are closely connected to each other:

both are feasible characteristics of action in any organization, but have a delicate relationship. Too much standardization makes innovation impossible, but without standardization innovations do not survive on the long run. We define the following short value chain of innovation and standardization: Technical innovation Technical standard Social innovation Organizational standard The technical innovations for telework are mainly there. We have the needed technical infrastructure, and in most cases telework too fits to the regulatory frames offered by work legistation, if only willingness to interprete so exists. Even technical standards exist to some extent: for example the needed telecommunication facilities and access methods to databases and other organizational data stores are there. Webbrowser based solutions seem to emerge as the as winners in the standard war. However, too many standards still fight for the interest of the telework society. What we are missing is the social innovation of telework, and without it we can not see telework to become an organizational standard. Arnbrak (1988) nicely made this clear in his classic article, how even a good technical solution like mobile phone needs social acceptance in order to become generally accepted. In the Nordic countries, an athmosphere making this possible existed in the case of mobile phones. Social innovation can be defined as the shared operationalized pinion of a group to accept or reject something. What is missing in the case of telework is just the accepting social innovation. Some reasons for missing social innovation in the area of telework: Big companies are resisting innovativeness Missing organizational slack Telework arrangements discussed with individuals, not in groups Risk aversion of short-run focus of management Telework is advancing to some extent with small companies (see for example Regerinskansliet 1998), but bigger companies have difficulties in adopting to it. This is well in line with the mainstream innovation litereture. Innovation is not likely to flourish in big, bureuacratic organizations with long traditions, but in small businessess (Grossi 1990, Jarratt 1999). A disturbing factor in the innovation concerning telework is that of missing organizational slack. For any innovation to proceed, a certain amoung of organizational slack is needed (Nohria Ranjay 1997). Human resources are usually the scarcest resources in any company, and any playing with them is too risky and costly. In human resources management, the needed organizational slack is missing, and thus there is no growing ground for innovations). Innovation is to emerge in human interaction, preferably in small multitalented groups (Ciborra 1993). Human resources management is usually a professional entity within any bigger organization, with own traditions, organizations and a limited set of external contacts. Contracts of employment are worked out with individuals with

little negoatioan power. The needed social network for innovation in telework simply usually does not exist. Innovations are by definition new things, and involve costs in the short run and risks (see Karlsson 1989). Changing working conditions always means a disturbance to routines, and decreased productivity in the short run. Organizations are usually focusing too much on short-term productivity and are not willing to make the needed investments in future productivity, especially with such risky arrangements as telework. Short-term orientetion and missing risk-carrying capacity are inhibiting telework. As managers should foster innovation in organizations in general, they should be especially sensitive to innovations in telework, which seems to have many factors that inhibit innovation.

DIFFERENT APPROACHES TO UNDERSTAND TELEWORK The transaction cost approach A working relationship can be interpreted as a transaction, or a set of transactions, depending on the detail of needed investigation. It is loaded with costs, both for the employee and the employer. So a transaction cost analysis is possible in connection with telework. The transaction cost approach (TCA) is founded upon the following assumptions (Williamson 1985, 41-42)_
1 2 3 The transaction is the basic unit of analysis. Any problem that can be posed directly or indirectly as a contracting problem is usefully investigated in transaction cost economizing terms. Transaction cost economics are realized by assigning transaction (which differ in their attributes) to governance structures (which are the organizational frameworks within which the integrity of contractual relation is decided) in a discriminating way. Accordingly a. the defining attributes of transactions need to be identified b. the incentive and adaptive attributes of alternative governance structures need to be described. Although marginal analysis is sometimes employed, implementing transaction cost economics mainly involves a comparative institutional assessment of discrete institutional alternatives of which classical market contracting is located at one extreme; centralized, hierarchical organization is located at the other; and mixed modes of firm and market organization are located in between. Any attempt to deal seriously with the study of economic organization must come to terms with the combined ramifications of bounded rationality and conjunction with a condition of asset specificity.

The basic distinction of TCA among different organizational forms is the distinction between markets and hierarchies (Coase 1937), which are forms of economic organizations. Given the division of labor, economic organizations control and coordinate human activities. A market is an assemblage of persons which tries to arrange the exchange of property, where prices serve as both coordinating guides and incentives to producers in affecting what and how much they produce as well as the amount

they demand. At the equilibrium free-market price, the amounts produced equal the amounts demanded without a central omniscient authority. (Alchian Allen 1977) In a hierarchy (firm) market transactions are eliminated and in place of the market structure with exchange transactions we find the entrepreneur-coordinator, the authority who directs production. (Coase 1937) The transactional approach stresses the characteristics of actors that make them or their working condition less than perfect: Bounded rationality Opportunism Information asymmetry Asset specificity Especially the concept of opportunism is ruining telework acceptance. According to TCA, any transaction involves opportunism, the desire of taking own benefit instead of shared, maybe in total bigger, benefit. In the first hand, the approach is interested in the costs of organizing work, and not so much on its productivity and results. Even when the approach has a strong tradition and theoretical background, it is not widely known by managers, maybe because of its very difficult conceptual approach. On the other hand, the rich set of concepts offered by the approach can too help in the understanding and analyzing of teleworking relationships.

The agency theory The agency theory can be regarded as a specific, more limited and worked out extension of the general discussion of governance structures, rooted in the transaction cost approach. Central concepts are those of a principal and an agent. Agency relationship is a contract under which one or more persons engage another person to perform some service on their behalf which involves delegating some decision making authority to the agent. (Jensen Mecklin 1976). Any working relationship can be included to this definition the similary between a working relationship and an agency relationship is carefully sorted out in Anderson (1985). Especially well this approach suits to the teleworking environment, where we tend to see goal incongruence and information asymmetrics, central topics for the agency theory. According to Eisenhardt (1989), the agency theory can be well used in situations involving goal conflicts, outcome uncertainty and unprogrammed and team-oriented tasks. All these characteristics are usual with telework. An agency relationship causes agency costs. They can be divided to the following components (Jensen Mecklin 1976): Monitoring costs, costs for the principal to follow up the actions of the agent Bonding costs, cost invested to maintain the agency relationship Residual loss, the difference between the agents performance and the performance, that would have been obtained by the principal doing the task himself. The agency theory perspective puts a close eye on the relationship between the worker and his manager, which is the critical part in any telework relationship. As the

transaction cost approach, it rather defines the problem area and gives concepts to handle it, but gives quite little solutions and normative guidance. It tends to emphasize goal incongruence, and does so not give a good mental starting point for introducing telework. However, it makes clear the truth in any relationship, that participants have different goals, but simultaneously maybe forgets that through negotiation and articulation work goals can be at least partly integrated. Both the transaction and agency costs are suitable theories for the information society and research on information technology and relationships, since they put information on a central key position. Problems in relationships and economy exist because of missing information and capability to handle it. This is by no means in the classical microeconomis, where information is more or less a free commondity and without any value or attention. As the transaction cost approach, the agency theory is deeply rooted in classical economics, and commands over a complicated set of concepts. Whereas the transactions cost theory focuses on the exchange of any commondity, more naturally physical goods, the agency theory focuses clearly on the exchange of labour and decision making. So it focuses on the very heart of telework. Taking into attention these strong sides of the agency theory, it is frustating to see that there are not any (?) or at least many research efforts to use the agency theory in the study of telework. One reason might be that it is considered as an economic theory, and so far researchers in the key economic areas have been insensitive to telework. Other researchers have been reluctant to use the agency theory because of its strong economic background, which we believe is just a part of the truth. As relationships and information exchange are put into a cental place, we would argue that the agency theory is rather a management and information theory than an economic theory.

Resource-based theory The resource-based theory is one of the current theories enjoying the wide acceptance by the scientific community. After a long period of market-oriented theories (for example Porter 1980, 1985, 1990) it turned attention to the internal issues of any organization, the assets and resources which are of permanent character for the organization, and with which one must live and of which one must take advantage on the contrary to the ever changing external world and market. Amit and Schoemaker (1993) define the importance of resources: For managers the challenge is to identify, develop and deploy resources and capabilities in a way that profices the firm with a sustainable competitive advantage and, thereby, a superior return on capital. Clearly we can define labour as a key resource for any organization. The resource-based theory should give us insights how to master and foster this resource. One of the weaknesses of the resource-based theory is again the complexity of used concepts. The concepts of capabilities, resources and competences are far from settled (see for example Andrey-Ciborra 1996). Again, however, the conceptual richness of the theory is its strenght. Important and interesting concepts from the viewpoint of telework include:

Resource mobility and heterogenity: Organizations command over resources of different kinds and qualities. Resources can be very immobile. Clearly, workforce fits well to this definition of resource. Social complexity (Barney 1991): resources may impeerfectly imitable because they are a very complex social phenomena, beyond the ability of firms to systemically manage and influence. This is the case in most human labour, but especially in information professions and in virtual and other not-traditional organizations, where telework is a common way of conducting work. Causal ambiguity (Barney 1991): causal ambiguity exists when the link between the resources controlled by a firm and a firms sustained competitive advantage is not understood or understood only very imperfectly. It is easy to agree that this is the case between telework(ers) and the firms susteined competitive advantage.

Interesting too is the discussion on the strategic potential of resources. A capability has strategic potential if it is (Barney 1991): valuable - takes advantage of opportunities in the environment and neutralizes risks rare - demand is bigger than supply difficult to imitate - difficult to get does not have strategically comparable substitutes. Whether teleworkers have strategic potential in this sense would reserve a study of its own. As resources are heterogenous, the situation clearly varies between different organizations. A brilliant definition of operational and strategic management is made by Hinton and Kaye (1996). They define that operative management masters over existing resources. Strategic management makes definitions over the total amount of resources. In this way, operational telework management masters existing teleworkers, whereas strategic management in the area of telework decides over the amount of teleworkers. The resource-based theory is very reality-oriented. It takes up many concepts of great importance for daily organizational live. Again, it is not very easy to understand and apply. The most important message anyway for telework is that workers in general should not be seen as costs but as strategic assets and resources, that demand constant management attention. Of the theories discussed so far it is the richest, because it places information processing and learning, and social complexity of daily organizational action into a central place. Thus it should we well armed to address the complicated reality of telework.

Process thinking Process thinking has been a dominant management paradigm for over 15 years. The main idea was that instead of functions and functional areas management should focus on processes, that cross organizational boundaries, and are usually even interorganizational. Process thinking and value-chain thinking are not far away from each other.

Processes were first natural to see in the process industry, but quite naturally they could too be found in the information professions. For the teleworker, implications of this kind of thinking are many. The positive factor for telework might be, that working is understood as a chain of activities, which are guided by the computer, and can thus be performed anywhere, too at a distance through telework. This kind of thinking anyway totally ignores the social complexity of work, and the need for articulation work, which is a key concept in any complicated organizational setting (Schmidt Bannon 1992). The teleworker is degraded to a part of a machinery, with no need for social contact. Just this has been seen as a key fear by teleworkers: they do not want to be away from the office because of the fear of losing their social contacts. Process thinking has very much to do with quality and efficiency of processes. Measuring them is important. This might well address the fear of many managers: the output of teleworkers can not be measured, neither in quality or quantity. Though many would like to introduce telework, very often the muscles to perform that are missing. Introducting a telework program is oftern considered risky and painful, and research has shown that telework is often performed on an ad-hoc basis, not as an centrally planned and controlled activity (Luukinen & al 1996). Cowherd, Douglas M. - Luchs, Robert H. (1988), among others, stress out that business process re-engineering is a total effort by organization, where several issues must be addressed. When performing business process re-engineering, one easily finds a natural place to introduce telework simultaneously. Top management is usually very motivated and positive towards business process re-engineering, and binding telework to business process re-engineering to telework makes it possible to extend this goodwill even to telework. One of the established sayings in business process re-engineering is that there is no gain without pain. This should apply too to telework. In order to arrive at the jointly decided goals, all stakeholders in the telework arrangement should be ready to carry some inconviniencies. For example, managers should understand that they are going to lose some of their direct control over the employees, and teleworkers should accept that they lose some of their social visibility in their organization, and that the working conditions might not perfectly match those of their main office. Too often telework initiatives are abandoned when even a minimal amoung of pain emerges. Process thinking emerges from engineering sciences. Study of working relationships is more a social activity. No wonder these two disciplines have seldom met. As even our short discussion shows, telework research and practice could gain a lot from the ideas of business process re-engineering. What one must anyway vary is the mechanizing tendency of process thinking: humans and teleworkers should not be seen as parts of large machinery. Organizational learning Whereas the resource-based theory could interpreted to be a kind of static view of an organization, the organizational learning perspective stresses the constant change of organizational environment, which organizations can master only through constant

learning. Every organization must be learning at least to some extent, but a real learning organization is defined as (Garvin 1993): A learning organization is an organization skilled at creating, acquiring, and transferring knowledge and modifying its behaviour to reflect new knowledge and insights. Another definition emphasises even the learning to learn (Senge 1990): Learning organizations are places where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning on how to learn together. In a way organizational learning is as science itself: its task is to interpret and understand the world (Daft-Huber 1987): The reduction of equivocality is the central problem to be resolved during organizational learning, and is the essence of organizational learning. Organizational learning can be approached from two perspectives (Daft-Huber 1987): The systems-structural perspective - focuses on the acquisition and distribution of information that is required for an organization to learn about its environment The interpretative perspective - focuses on 1 understanding organizational members individual interpretations of the environment 2 understanding the alignment and interaction of organizational members environmental interpretations Romme and Dillen (1997) differentiate between four different conceptual background through which organizational learning can be studied. All these seem to be relevant point of views for telework too: contingency theory psychology information theory system dynamics Central concepts for organizational learning are those of single- and double-loop learning (Agryris-Schn 1978). Single loop learning involves processes in which errors are tracked down and corrected within the existing set of rules and norms. Double loop learning involves in addition changes to the fundamental rules and norms underlying action and behaviour. To interpret this in telework environment, double loop learning begins when telework is introduced, and when performing it, mainly the mode of single-loop learning is active. The organizational learning perspective opens up new avenues for telework, as for any new and risky undertaking of a company. If no immediate operative or even strategic benefits emerge, the gained knowledge anyway makes the effort worthwhile. To look at the other side of the coin, the organizational learning perspective is more academic, and not so popular with practitioners. This might be because of the loose touch of the approach with concrete results of actions, at least in the short run. A manager wanting to see immediate results and concrete profit-making action can not do much with the learning organization approach on the short run. Organizational

learning might be seen as an academic nonsense kind of thing, and if we anchor telework strongly with it, we might lose the child with the bathing water.

CONCLUSIONS Also, Which issues in popular management approaches favor and inhibit telework application in organizations? For all the approaches, we can see both negative and positive sides, if we think of telework. Using all of the approaches discussed above, we can find both factors that support introduction of telework of inhibit it. In Table 1 we summarize our findings about the different approaches.
Approach Primary unit of analysis Organizational Learning in learning and through telework Issues highlighted Diffusion of innovations Individual and org. learning Knowledge formulation Transactional view Participant shortcomings Issues hidden Competitive advantage Strenghts Shortcomings Used in several disciplines Dynamic view of an organizatio n Strong theory background A good conceptual set A good conceptual set Does not stress productivity and output

Transaction cost approach

Costs of organizing telework

Results gained Productivity of work

Difficult concepts Difficult to operationalize

Agency theory The employee- Different employer goals relationship Resourcebased approach Competitive advantage Cumulating Resources Workers as a Valuable resource Work Streamlining processes processes And their Saving time implementation and money into IS Measuring output Resources used and saved by telework

Co-operation

Outputs, results Fresh Discusses reality

Easily stresses contradictions Difficult concepts Not established, application intuitive Concepts unsettled Roots in manufacturing "Human touch" forgotten

Process analysis

System integration Social complexity

Effectiveness Quality issues of high importance

Table 1.

Different conceptual approaches to telework

The author would like to continue with the exploitation of transaction cost approach, agency theory and resource-based approach. These are deeply rooted in science and academia, whereas organizational learning and process thinking are more practicallyoriented issues, the latter anyway maybe less. Central is to have a theory that puts order and gives concepts to understand telework as a social phenomenon, and that puts information into a central place.

Telework is not socially accepted in many organizations. Managers as well as actual and potential teleworkers do have fears and doubts about it. Surely one reason for this is that there is no dominant management theory, that would have the authority to say that telework is good. Yet there are many management truths that are jointly accepted by managers (see Astley 1985, as for example that of top management support, that is critical for all information system undertakings. Proponents of telework have to work out current theories and theoretical frameworks, and show through and with their authority that telework is good for organizations. Even our short analysis showed that there is a lot of potential in the management theories for that. Maybe, then, even in the near future we might witness a day, where socially accepted standard management norm towards telework is advancing and supporting it.

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