Preface to Japanese Translation of Virtual Organization

November 1, 2005 (Original article date)

Virtual organization presents two different faces to the world. One face reveals an ability to enhance the efficiency and effectiveness of management, and to achieve greater flexibility of action. The other shows the dissolution of traditional relationships in the course of realizing these desirable ends. In a word, virtual organization is a disturbing agent of social change and thus provokes ambivalent responses. It is most clearly evident as an innovation in business management, especially within multinational firms and in e-commerce. But virtual organization has implications for society as a whole and is thus treated in this book in its broad social context.



Virtuality and the Financial Crisis: Part 2

Corrective measures envisioned by lawmakers in the heat of the financial crisis are directed toward strengthening oversight of financial markets. The regulatory system including the Federal Reserve, the Securities Exchange Commission, and other Federal agencies collectively may have been unable to detect the formation of a speculative bubble in the housing market; or perhaps the system detected problems but failed to act on a timely basis. Interest rates could have been raised to reduce the amount of credit available for house purchases, and abusive lending practices could have been curtailed giving potential buyers more accurate information about their ability to carry a mortgage, and thus reducing the chances of defaults and foreclosures later on.

Overhauling and strengthening regulatory oversight of financial markets is a sensible step, but not enough to prevent a recurrence of the frenzied pursuit of profit that precipitated the crisis. Not all mortgage lenders succumbed to the lure of higher profits through securitization of loan portfolios.



Virtuality and the Financial Crisis: Part 1

The financial crisis that began in 2007 and reached fever pitch in the past few months is generally believed to be a consequence of the securitization of subprime mortgages and more generally of the over extension of credit. Participants in this tragic drama include actors in the real estate and financial services industries as well as home buyers.

The process of purchasing a house consists of a long chain of transactions starting with a ‘meeting of the minds’ of buyer and seller, usually mediated by a real estate agent representing the seller. Once an agreement has been reached, the buyer must arrange financing. Here is where the trouble starts.

Let’s say the buyer uses the services of a mortgage broker to find a bank or other lender willing to issue a mortgage on the house. Having no responsibility for the future behavior of the buyer, and receiving a fee for its services, the mortgage broker’s interest is to place as many mortgages as possible. Real estate agents and property appraisers have a similar interest. Both work on fees or commissions based on sales, so their aim is to generate as many sales as possible.


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Indentured servitude in a new key

These reflections on virtual organization are about the meaning and social significance of computers as mediators and brokers. Computers mediate between individuals by providing channels of communication in the form of messaging systems; they act as brokers in matching buyers and sellers, employees and employers, resources and work processes, etc. The explosive growth of electronic commerce on the Internet has made such functions commonplace. Computer-based mediation and brokerage lie at the heart of virtual organization, a powerful and flexible mode of organization founded on a separation of requirements from the ways in which requirements are met. Separating these elements allows managers to switch easily from one way of meeting a requirement (e.g., for an employee, a supplier, partner, etc.) to another. Used systematically, switching brings huge increases in productivity provided transaction costs are held in check. The price of this increased efficiency is that, practiced regularly, switching weakens personal and political loyalties. Absent a sense of loyalty to persons or places, virtual organizations distance themselves from the regions and countries in which they operate. Virtual organization is undermining the nation state. Government as we know it today cannot control virtual organizations and will have to cede its responsibilities and powers to them. A new feudal system is in the making.



Virtual Organization – the definitive text

Virtual Organization – Towards a Theory of Societal Transformation Stimulated by Information Technology

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“Before Internet (BI), the historian Stavrianos (1976) wrote, “The Western world today is re-experiencing the decay and despair of its early post-Roman centuries.” Despite opposite causes – technological stagnation in the Roman Empire versus unbridled technological development in the modern West – both periods bear similar marks of decline…”

“…is a meditative and thought-provoking discourse on how modern information technology molds and transforms society itself… Virtual Organization is highly recommended reading which delves deeply into serious and complex forces driving the growth and change of our modern society.”Library Bookwatch Review