Introduction

Chapter 14 - Virtualisations and its Role in Business
Managing IT in Government, Business & Communities
by Gerry Gingrich (ed)
Idea Group Publishing 2003

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Virtualisation, which is a subject of this thesis, could not exist without information technology (IT). Most authors who write about the problem of virtualisation apply an object-centred approach. Within this approach, the analysis is based on organisations and their structure. Perhaps this approach should be supplemented by a process-centred approach, which allows presenting both a complex nature of the virtualisation process and the analysis of its impact on society. According to Percival-Straunik (2001), virtualisation triggers off the process of integration and creation of global organisations. It is the basis of new business quality measures such as e-business and e-commerce.

The hypothesis, which should be proved in this thesis, is as follows: In today's world, a controlled virtualisation process creates enormous opportunity for economic growth of those countries and organisations, which, so far, due to various restrictions, have had no chance to establish themselves on the global market and become competitive.

In practice, the restrictions on development are of a varied nature. They might be economic, legal, psychological, and organisational. The hypothesis presented earlier may be developed further; in the modern world, only those people and organisations who know how to make use of the possibilities presented by virtualisation may become competitive on the global market. Moreover, virtualisation creates the best options for intellectual enterprise development. Barrenechea (2001) is perhaps completely right when he says, "e-business or out of business."

The reason for which the virtualisation process has to be controlled is the fact that it brings advantages as well as new unknown dangers. Some of these dangers have been described by Chenoweth (2001) in "Reality war on the information's highway." In most cases, virtualisation, according to Breier (2000), Gates (2000), and Maitland (2001), is a chance for a significant improvement of one's life situation or development of an organisation.

The term virtualisation describes the processes connected with IT application. It is facilitated in the following areas of activity:

• In traditional organisations that want to expand their range of activities and have access to IT and global computer network. Such organisations develop through creating new subservient organisational units, such as Internet kiosks or shops. Other steps leading to further development include expanding, through the IT, the already existing sphere of activity for example marketing or human resources.

• Creating a virtual organisation, i.e., an organisation established in order to achieve a common goal or goals. In such an organisation, the participants enter various types of relationships. The participation in the organisation does not require any form of legal agreements. The duration of a relationship is determined by each of the participants of the virtual organisation. A decision to terminate or reconstruct may be taken by any participant who decides that the relationship is no longer beneficial for him or her. A virtual organisation operates in the so-called cyber-space. The duration of any relationship may be extremely short. A virtual organisation does not have one boss. It begins to exist precisely at the moment when the manager of any given organisation comes to a conclusion that he is unable to fulfil the task on his own and he needs to co-operate with other organisations.

• Supporting teaching in various areas, including distance learning and application of computer simulation models for teaching such subjects as decision-making processes or complex process analysis.

The influence of virtualisation on the society is both varied and significant. In this thesis, there are presented results of our own research on this problem and the analysis of the literature on application of virtualisation in practice. The thesis also focuses on the problem of virtualisation as a chance for small and medium-size enterprises (SME), and also on the role of virtualisation in stimulating professional activation.

Virtualisation in Traditional Organisations

Virtualisation allows for development of any organisation at a much lower cost than in the traditional way. The picture presents the diagram of an organisation whose core is formed by traditional, permanent structures. These structures are connected with the virtual members of the organisation. The virtual elements established within the virtualisation process are very flexible. Thus, the organisation may quickly adjust to the changing environment.

Development through virtualisation may be facilitated as follows:

• The organisation creates virtual kiosks or shops. For that, specialty software is required. Thus, the organisation that sells furniture, by using computer graphics, may present its products on a computer screen. It may also receive orders in places located outside their traditional locations. In exactly the same way, other organisations, e.g. travel agencies, real estate companies, book shops, the stock exchange, etc., may operate.

• An organisation places information about its activity on the appropriate Internet pages. Through the monitoring programmes it is available to its potential clients 24 hours a day. This way, the operations of the organisation are not limited to office hours only. Home banking services function in the same way. A client can perform banking operations from home. Compared to the situation described earlier (traditional) the expenses connected with the services of an organisation are shifted to the client. It is the client who has to pay for the terminal and access to the Internet or another network, for example Extranet. The organisation covers the cost of the development and exploitation of an appropriate system. It often provides the client with the software, which allows him to use the resources or services provided by the organisation.

  
  Figure 1: Structure of a Modern Organisation

• The organisation creates a possibility of working from home, the so-called Tele-work. In this way, the organisation may develop or restrict its activities depending on its needs. It is a very good way of increasing professional activity in those regions in which it is difficult to find employment in a traditional way. It should also be remembered that through Tele-work, a local organisation might become a global one.

Virtualisation allows traditional organisations to have a wider range of influence. A society is better-informed on the organisation's activities both by the organisation itself and by its clients. The restrictions on the development are varied. The most common include available financial resources to purchase the IT, language of presentation, and a necessity to have access to global, reliable computer networks. It should also be stressed that, unfortunately, virtualisation enables organisations that are not socially accepted (pornography, terrorism) to operate freely.

On the basis of the analysis of those organisations that utilise virtualisation in their activities, it can be assumed that their development requires five times lower investment outlays and costs connected with operational activities. Only in separated cases, the proportions were less favourable. Minimum savings obtained in result of virtualisation exceeded 60% of the financial resources, which would otherwise be spent on comparable development of the same organisation.

In the organisations where the development is achieved through Tele-work, the proportions are difficult to calculate. The analysis of a situation in the organisations in which Tele-work is connected with group work (workflow management) or in those that obtain employees from the countries where salaries are low confirms high effectiveness of virtualisation. Such a situation can be observed in software development. The companies from highly developed countries, such as the USA, Great Britain, or Germany, employ programmers from India, China, or Pakistan. This situation is beneficial for both the company and the countries the programmers come from. Whether it is beneficial for the tax system of the countries that buy such labour is another story.

It is a totally different situation when Tele-work is connected with professional activation of the disabled or the unemployed. Direct costs are higher as we deal with the poorer part of the society. Thus, additional costs have to be incurred for training, hardware, and software. Unfortunately, there is no data available to make a precise calculation. It is extremely difficult to establish how much money has been spent. In many countries, the cost of training and purchase of the equipment is covered by special social programmes. It is also difficult to estimate advantages. It may be said that social effect, which decreases the unemployment figures and, in the case of the disabled, enables them to live a normal life in the society, is the most important one. It is a very significant advantage possible only through virtualisation. Tele-work ensures reducing the necessity to directly invest in the development of an organisation, reducing overloading of communication systems, savings in the time spent on travelling to work, and savings in expenses connected with creating new parking spaces.

The issue of outlays and effects connected with virtualisation of work places will be analysed in further research. The analyses that aim at more precise estimation of profitability of the decisions to develop an organisation through virtualisation are the most significant.

Virtual Organisation as a Chance for Small and Medium Organisations

Virtualisation that leads to creating a virtual organisation forms a separate category. The term "virtual organisation" was used previously. In the literature on this subject, there are many terms used to define such organisations. Terms such as "network organisations" (Drucker, 1998), "organisations after re-engineering" (Hammmer and Champy, 1994), "crazy institutions" (Petersa, 1994), and "intelligent organisations" (Quinn, 1992) have also been used.

The analysis of the existing virtual organisations confirms the fact that they are not created by big companies. Their development is made through previously stated directions of activity such as kiosks and Internet shops and Tele-work. The reason for this situation might be fear of unethical conduct of other organisations that might destroy their reputation on the market (Kisielnicki, 1999).

One can state that SMEs, in order to establish themselves on the market and increase their competitiveness, create virtual organisations. To verify the above thesis, there were performed, in 2001 and 2002, investigations aiming at answering the following question (Kisielnicki, 2001):

• Do organisations' managers and entrepreneurs working for SMEs recognise a possibility of development by the way of virtual organisation?

A questionnaire distributed by myself during the course on application of the IT provided the following results: (the questionnaire was completed by 165 owners and managers of SMEs)

• Do you want to expand your activity? - 165 positive answers

• Do you have a concept of actions necessary to take in order to do so? - 162 positive answers

• What are the most important obstacles in the development of your organisation?

  • Lack of financial resources - 155 positive answers

  • Fear of realising the concept in practice - 128 positive answers

  • Lack of appropriate staff - 85 positive answers

  Please note that two answers could be chosen.

• Do you think that virtualisation may be a good direction of development for your organisation? - 118 positive answers

There were also many reservations as to the development through virtualisation. They were mainly connected with the fear of:

• Unethical behaviour of the co-operating organisations, for example not fulfilling their obligations, offering low-quality products, and also dishonest competition (the so-called economic sabotage)

• Operating in the conditions of total transparency, which may lead to the theft of an idea or new technology, especially by big organisations as they have the appropriate economic potential and staff and are able to perform the task independently

The questionnaire, as such, has a limited cognitive value. It was conducted once only, in one country, in a big industrial centre. The people who participate in professional skill development training are always those who search for new solutions. Their opinions may not always be the same as the opinions of the so-called average owners and managers. Also, the polled person was familiar with principles of virtual organisation and in their professional activity they had utilized IT.

The influence of virtualisation on the development of SMEs may be presented on the basis of two case-studies.

Case I: "Soft Enterprise" company creates application software. It employs 15 designers. In 2000, it won a bid for developing a concept of computerisation of a big public administration institution. The concept was accepted by the institution.

The work ordered was to design a system based on Date Warehouse, including the delivery of an appropriate hardware and installing a computer network. As the order exceeded the appointee's capabilities, they created a virtual organisation. The work on the design of the system was divided between mixed executive teams. The concept was realised by both home and foreign companies. In order to realise the task, a global organisation was created. The internal links were multi-levelled. It resulted from the fact that mixed project teams (virtual teams) were created to complete partial tasks. In corporate work, the Tele-work and group work software have been used. The process of creating virtual project teams is shown in Figure 2.

Figure 2: Creating the Virtual Project Team

Case II: "Budex" company deals with housing constructions and repairs. It employs 60 people. In 1999 it constructed a building for a big development company. The company, being very satisfied with the services, ordered Budex to design and construct a housing development for 2,500 inhabitants. Budex was unable to fulfil the task on its own and thus created a virtual organisation. The organisation, after six months, becomes a holding company that deals with both design and construction.

The presented cases are typical of organisations that function using the virtualisation process. The organisations under analysis could establish themselves on the market only through virtualisation, as it enabled them to create one organisation. These organisations had not co-operated before. In the first case, the organisation was created only in order to perform a given task of computerising an institution. In the second case, virtualisation was the first step towards consolidation and creating a new, economically strong company. Virtualisation, in both cases, was about the process of acquiring producers, information on their reliability, and current cooperation for the sake of performing a task. And, although in both cases there were some traditional elements such as contracts and written agreements, the first step taken in order to fulfil the task was virtualisation. The contracts were concluded in result of agreements realised through the IT. The process of creating a new organisation Budex holding by virtual organisation is made by the three following phases:

• Phase I the traditional organisations,

• Phase II the virtual organisation,

• Phase III the Budex holding.

Virtualisation is a chance for the transformation of SMEs into fully competitive organisations, even for the big and well-known companies. Virtual organisations perform the role of an incubator. And this is their positive influence on the society.

Virtualisation of Teaching

The research conducted by me and published previously suggests that a significant number of students, both in day studies and those working, feel the need to learn how to manage an organisation (Kisielnicki, 2001). The learning should be organised in circumstances as close to reality as possible. Virtualisation is the discipline of studies, which may cause the distance between the theory and practice to diminish. One may even risk a statement that it is the exact direction of the virtualisation, which, in the nearest future, shall have the most significant impact on the society. Virtualisation has influence on the increase of the effectiveness of the teaching process in the widest possible sense. It would be extremely difficult to find a discipline to which the virtualisation could not be applied. Perhaps not as the main subject, but most certainly as a subject supporting traditional teaching methods. Virtualisation may be applied in such areas as lowering the cost and decreasing time of training jet pilots, and also in improvement of military command, operating on the stock exchange, or cognitive analysis of genetic processes. In science, there are many examples of big discoveries that were first tried on computer-simulated models. It is virtualisation that allows for simulation of both the decision-making process and the analysis of complex technical or sociological processes. In virtualisation of teaching, two basic directions in which it develops can be identified.

The first one is the direction of common education in which everybody can, using the tools of IT, possess a given knowledge. A classic example is a virtual stock exchange. In many countries, a lot of people want to learn how to operate on the stock exchange before they actually start using it in an attempt to make money. Those people can get the necessary experience by using appropriate software. They can acquire necessary skills in the virtual world. This direction allows educating societies. There are also numerous games available through the Internet. These games not only provide pleasant time spent on playing, but also teach foreign languages or how to drive a car.

Another direction is dedicated teaching. There are the following activities to be identified:

• Self-control, i.e., your own evaluation of the possessed knowledge. For example, by using special software, the level of knowledge may be assessed, such as choice of the level of foreign language learning. Such method is applied by some language schools.

• Help in learning specific subjects. This includes, amongst others, enterprise laboratories, business games, and special simulators that teach how to use a specific technical equipment, e.g. flying simulators.

• Distance learning. A student who has a proper terminal and software may participate in classes from a distance. This direction of virtualisation is similar to the previously presented distance work.

Nowadays, all the decision-makers seem to appreciate the significant role of virtualisation in the process of education, although they do not always realise how complex it is.

Final Comments

Virtualisation is a very complex process. Nevertheless, it will certainly develop and be applied to an ever-expanding range of activities. It carries a lot of positive impact on the societies, but also some dangers. The author would not like the reader to get an impression that he treats virtualisation as a way to success. It should be remembered that, according to Thomson Financial Securities Data, for 20 Internet companies introduced at the stock exchange by Merrill Lynch Bank in 1997, the quotes of 15 of them dropped below the nominal value and two of them went bankrupt. The rates of eight companies, including the Buy.com virtual computer shop and 24/7 Media, an Internet advertising agency, dropped below 10% of the nominal value (Gates, 2000). The analysis of the reasons for this situation, as conducted by me, shows that very often the reason lies within the management errors. The most apparent example is Pets.com, an Internet animal food shop, which incurred a vast financial loss. The reason for this loss was the fact that the IT staff of the company could not solve the problem of defective codes. That was the reason for multi-million dollar losses.

Despite these negative experiences with virtualisation, the author remains an optimist and he would love to conduct research on this issue in various countries. The process of virtualisation has its features independent of the type of application. It also has its own character.

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