Coordination and virtualization: The role of electronic networks and personal relationships

One view holds that organizations are virtual to the extent that they outso urce key components of their production processes, and that electronic netw orks make if easier to do this. The goal of the present paper is to examine explicitly the effects that use of electronic networks for transactions wi th suppliers has on firms' degree of virtualization. In so doing, we also h ighlight factors that influence the use of networks for coordination with s uppliers, and the impact such use has on coordination success. Contrary to much recent speculation, the use of electronic networks for transactions wa s not associated with increased outsourcing, but rather with greater depend ence on internal production. Moreover, the use of interpersonal relationshi ps for coordination, which many think of as an alternative to electronic ne twork use, was positively associated with greater network use. Surprisingly , use of electronic networks was negatively associated with such outcomes a s order quality and efficiency, and satisfaction with suppliers, while more reliance on personal linkages was associated with better outcomes and miti gated the negative consequences of using electronic networks.