Embedding Virtuality into Organization Design Theory: Virtuality and Its Information Processing Consequences

Abstract

What is virtuality in organizational design? In this chapter we argue for the importance of understanding the nature and effect of the characteristics of virtual organizations, rather than simply focusing on how these characteristics are different from co-located organizations. Through a review of literature relating to virtual organizations we identify two different dimensions: locational and relational differentiation, which capture the nature of virtual organizations well. We anchor theoretically these dimensions to organization design and information processing theory. This enables us to identify their effects and consequences for coordination in information processing terms. We thereby not only integrate theory of virtual organization into extant theory of organization design but, more importantly, also demonstrate how increasing virtuality essentially imposes an information processing dilemma for organizations: Locational differentiation reduces the information processing capacity, while relational differentiation increases the information processing requirements. We discuss the managerial as well as the theoretical implications of these findings.