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Virtual Organizations and Implications for HRM Practice

Topsy Tail, a fashion accessories company, had revenues of around $80 million at the end of the 90s but only 3 employees. How was it possible? Topsy Tail is a good example of a virtual organization, an organization that is not bound by physical space and relies on information technology to power its operations and connect people operating across different locations.

Topsy Tail took outsourcing to its limits, outsourcing all its business activities and managing them through online channels. Virtual organizations can be found in various industries and examples include financial service firms and online schools that rely on a network of teachers educating students virtually.

Despite operating across different industries, virtual organizations have common characteristics. These features have been discussed in the book “Managing in Virtual Organizations” [1] and outlined as follows:

  • Lack of physical structure
  • Reliance on communications technology
  • Mobile (remote) work
  • Hybrid forms: such as networks or virtual supply chains
  • Boundaryless and inclusive: virtual organizations are not confined to legal entities.
  • Flexible and responsive: virtual organizations are, in principle, very responsive and flexible. They should be amenable to rapid assembly from a variety of disparate elements, used to achieve a certain business goal, and then dismantled. Much in practice, however, will depend on the people involved: whether they can negotiate mutually satisfactory arrangements quickly and whether managers and employees are willing to work flexibly.

Professor John Child in his book “Organization: Contemporary Principles and Practice” highlights the fact that virtual organizations require very well-thought-through HRM systems. He explains,

“In a virtual organization, people work more autonomously and have to be prepared to make decisions independently while at the same time coordinating with others and often working collaboratively with distant colleagues. For such individuals, time management and self-management skills are particularly important operational competencies. They may also be concerned that their lack of organizational visibility could lead to reduced promotion and development opportunities. Their managers must be sensitive to concerns such as these, as well as to selecting appropriate people in the first place. This implies that managers in virtual organizations should be very sensitive to HRM issues and develop sufficiently sophisticated systems” [2, p. 209].

People working for virtual organizations may feel alienated and distant from other team members. Therefore, managers need to address these issues by organizing in-person meetings accompanied by social events that will give people an opportunity to connect with each other at a more personal level and develop trust.

Managers can also allocate time to make regular visits to offices distributed across different locations. In addition, news and other important information should be regularly distributed throughout the organization to ensure that everybody stays up to date on all the relevant organizational activities.

HRM professionals working for virtual organizations need to pay special attention to activities focused on building trust between team members. There is a lot of evidence that trust is crucial for successful collaboration within the company and it brings tangible results [3]. Therefore, even though it might be challenging to develop trust between team members working from different locations, HRM professionals should make special provisions to ensure it is developed and sustained.


[1] “Managing in Virtual Organizations” (2004) M. Warner and M. Witzel; London: Thompson

[2] “Organization: Contemporary Principles and Practice” (2005) J. Child; USA, UK and Australia: Blackwell Publishing

[3] “Strategies for Developing Trust in Virtual Projects Teams” (2021) D. A. Ritter, Doctoral Study, College of Management and Technology, Walden University [Available at link]

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