Risk Mitigation in Virtual Organizations

Grabowski, M., & Roberts, K. (1998). Risk mitigation in virtual organizations.   

How safe is your virtual organization - ways to elevate some risks commonly experienced ensuring great success. 

This paper looks at the problem of risk mitigation in virtual organizations (VO's).  The advantages of using such include "adaptability, flexibility, and the ability to respond quickly to market changes".  VO's characteristically include members who form temporary bonds due to working relationships that are formed and dissolved as needed.  Such organizations are networked electronically and transcend organizational boundaries.  Success of VO's depends on common business processes and objectives. 

Risk propensity in VO's and traditional organizations is characterized by a number of factors such as inherently risky tasks and technology, human error and confusing and/or contradictory messages about risk tolerance conveyed by the culture of the organization to the members.  In VO's some additional factors come into play though.  These include the possibilities that risk identification and mitigation will be more difficult because of the dispersed networking and way that fluid business processes are shared.  Also included is the possibility that identification of an error chain may prove to be more difficult because of the large size and complex set of interactions that characterize VO's. 

HRO (highly reliable organizations) research is used to examine critical risk mitigation processes in VO's.  HRO's include organizations in which even minute errors can lead to dire consequences and without risk mitigation, such organizations would not be able to operate.  Examples of such HRO's include operations of some US commercial nuclear power plants and incident command systems in fire authorities. 

Four characteristics of HRO's seem to apply to risk mitigation in VO's: 
1) Paying attention to organizational structuring and design, 
2) Focusing on communication at the interfaces of the VO, 
3) Developing a shared organizational culture of reliability across all members of the VO and using effective communication at the organization's interfaces and 
4) Developing trust among members of VO's. 
Essentially, the four critical processes applied from HRO's to VO's are organizational structuring and design, communication, culture, and trust. 

In discussing the first of these processes, organizational structure and design, the author emphasizes the need for fluidity in organizational structures so they can easily adapt and dispersed members can respond immediately to the changing environment.  This provides flexibility for the organization in allowing them to restructure and react quickly to such changes.  This fluidity can be achieved through network forms of organizations, platforms and also lateral forms. The first of these forms allows organizations to either grow or shrink in response to environmental changes.  Platform and lateral organizational forms increase coordination and cooperation among members and are most useful in organizations with a high amount and variety of information requirements such as in fire and emergency services that respond to large-scale disasters. 
 
 Next, the author addresses communication as a second critical factor in risk 
mitigation of VO's.  The need for communication in VO's is similar to that of HRO's in that people communicate to reduce uncertainty and make situations increasingly predictable.  Communication in VO's serves for clarification, encouraging organizational growth, discussing improvements and goals, building relationships, and building trust.  In doing so, it also contributes to a culture of increased safety and predictability. 

 Organizational culture is the third process identified in risk mitigation in VO's.  Sometimes forming a shared culture within a VO can be difficult when VOs' members come from varied cultural backgrounds.  But this is necessary in order to promote shared goals and organizational behavior with underlying incentives and control systems, therefore creating a more cohesive whole and reducing risk that could result from differing views and issues involving cultures and backgrounds. 

Trust is the final area that is perhaps the most crucial in VOs' risk mitigation.  It is important that members of VO's have a shared commitment to goals, safety, reliability and willingness to adapt and learn.  Trust allows members to focus on the task at hand more so because they are not troubled by doubts about other members and their roles and responsibilities, and also synergistic efforts a realistic possibility.  However, since members are dispersed and often juggled to other tasks as needed, trust can begin to fade, which illustrates that it requires much effort by members and management to keep it alive. 
 After discussing these four characteristics of risk mitigation in VO's, the article goes on to share the authors' views about how risk is mitigated in VO's.  Examples are given to show how organizational structures, communication, and shared cultures are essential to the VOs' success.  Examples and explanation are also given about what managers can do in VO's and how their role should incorporate aspects of culture, communication and trust.  Their theoretical and research agenda touches on the "temporariness" of VO's as a drawback.  Finally, the authors give proposals for the future in the areas of structuring, communication, culture and trust. 

This article was quite interesting in pointing out how important risk mitigation strategies are in virtual organizations- as important is in organizations with the highest risk factors.  Taking such precautions, the same as those used in HRO's, is vital to such organizations and this article does a nice job of explaining what those the critical factors are and examples of their use towards the success of virtual organizations.

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