Business trust and the formation of virtual organizations

Abstract

Organizations are operating in a complex and unstable business environment which is characterised by global pressures, de-regulation and intense competition arising from the innovative application of information technology to all aspects of business. In this new environment, the old rules of competition no longer apply, and there is a clear move away from traditional forms of strategy towards innovative approaches such as global market strategies, time-based competition and dis-intermediation in the supply chain. These mega-trends affect all types of organizations and industries and are forcing individual organizations and their economic partners to respond. One important outcome is the emergence of 'virtual' organizations which are defined with respect to their product-market strategy, network structure, information systems and business communication patterns. Virtual organizations are composed of different legal entities and are often geographically dispersed and international in their outlook. Emerging forms of virtual organization are characterised by their use of business trust in addition to formal legal contracts. A series of hypotheses are proposed and the theoretical implications of trust in the formation and development of virtual organizations is discussed.