Coordination and Virtualization: The Role of Electronic Networks and Personal Relationships

TLDR

Virtuality is often defined by outsourcing key production components, a process that electronic networks facilitate. This study examines how using electronic networks for supplier transactions affects firms’ degree of virtualization. The authors identify factors influencing network use for supplier coordination and assess its impact on coordination success. Electronic network use was not linked to more outsourcing but to greater internal production; it also correlated with poorer order quality, efficiency, and supplier satisfaction, whereas interpersonal relationships increased network use and improved outcomes, mitigating the negative effects of electronic networks.

Abstract

One view holds that organizations are virtual to the extent that they outsource key components of their production processes, and that electronic networks make it easier to do this. The goal of the present paper is to examine explicitly the effects that use of electronic networks for transactions with suppliers has on firms' degree of virtualization. In so doing, we also highlight factors that influence the use of networks for coordination with suppliers, and the impact such use has on coordination success. Contrary to much recent speculation, the use of electronic networks for transactions was not associated with increased outsourcing, but rather with greater dependence on internal production. Moreover, the use of interpersonal relationships for coordination, which many think of as an alternative to electronic network use, was positively associated with greater network use. Surprisingly, use of electronic networks was negatively associated with such outcomes as order quality and efficiency, and satisfaction with suppliers, while more reliance on personal linkages was associated with better outcomes and mitigated the negative consequences of using electronic networks.