Rust And The Virtual Organization Commerce Essay


This assignment analyses Charles Handys article Trust and the Virtual Organization which was published in 1995 in the Harvard Business Review. Although the article was written 17 years ago, it could not be more relevant these days. Charles Handy (1995) proposed that information, ideas and intelligence will define the economic success of developed nations in the future and this assignment will show a critical analysis of the repercussions and accuracy of his proposition. In this context topics like globalization, organization development, management practices, organizational effectiveness and the future of work will be looked at.

Critical Analysis

Charles Handy's (1995) article on organizational theory and management shows the changes of the last twenty years which have been immense and have challenged our comfortable perceptions of the world. Charles Handy (1995) was right with his proposition and many organizations now have to face a dynamic and turbulent environment which requires flexibility and fast responses. Charles Handy (1995) envisions these environmental changes and describes how organizations might react to it. It is amazing that 17 years ago he has foreseen the future of work e.g. virtual organizations, which will be discussed in this paper, so accurately.

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The environment of organizations is affected by globalization, technological innovation, fierce competition and rapid knowledge growth. Over the past years globalization has become a current debate which refers to the integration of economics and societies all over the world. It involves technological, economic, political, and cultural exchanges made possible largely by advances in communication, transportation, and infrastructure (Dabbah, 2010).

In the author's opinion globalization is changing the markets and environments in which organizations operate as well as the way they function. Organizations have to adopt the new trends of globalization and have to change their ways of doing business in order to remain organizationally effective, as Charles Handy (1995) points out in his article.

The history of organization development has undergone different approaches and the year 1960 was significant as was the decade of the T-group (Argyris, 1962; Harrison, 1963, 1966). Throughout the 1970s and 1980s organization development became a more established field and the organizational culture became an important topic. In the 1990s and 2000s organization development continued to grow and its influences could be seen in theories and strategies such as total quality management (TQM), team building, job enrichment, and reengineering. Terms like organizational effectiveness and employee engagement have become important topics as well, which Charles Handy (1995) discusses in his article. He points out that organizations and individuals must learn to cope with shifting work patterns and employees have to be fully involved in their work and in the organization culture.

A positive and strong organization culture can make an average individual perform and achieve brilliantly and is a large factor for business success. Charles Handy (1994), cited in The Economist (2009), says that organizations are 'not machines that can be neatly designed, mapped measured and controlled'. In agreement with Charles Handy (1995), various authors (Hamel, 2007, Schiuma, 2011) state that organizations are forced to find new ways of managing and improving business performance. In other words, organizations are challenged to become continuous innovators and need to optimize the use of resources and make sure that innovation is really the engine for competitiveness and sustainability. Therefore, the organization culture has an active and direct role in different management practices (Kandula, 2006). In the author's opinion, the organization culture is a variable that can be manipulated by management to improve the competitive position of the business.

The management practice by Douglas McGregor(1960) is a theory which examines the behavior of individuals at work. Using human behavior research, he noted that the way an organization runs depends on the beliefs of its managers. In the figure below the key elements of the theory are shown:

Figure 1: Douglas McGregor's 'Theory X and Theory Y' (1960)

Available at:, 23 October 2012

McGregor (1960) was able to show that 'Theory ' managers create a better employee engagement than 'Theory X' managers. 'Theory Y', the opposite of 'Theory X' argues that people want to fulfill themselves by seeking self-respect, self-development and self-fulfillment at work as in life in general. In agreement, Charles Handy (1995) thinks that everyone needs fulfillment of all our needs in any situation. In the author`s opinion, having responsibility and the opportunity to use one's skills at the workplace will lead to personal growth and improvement.

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Another important management practice is the two factor theory of Frederick Herzberg (et al. 1959; 1968) who explains the factors that motivate employees in their jobs. Motivation refers to the forces within an individual (Schermerhorn et al., 1985).

Competition as a result of globalization, technology and industrialization has compelled managers all over the world to motivate their employees and to stay competitive. It is therefore even more important to understand an employee's motivation and to be aware of Herzberg's theory. Frederick Herzberg (et al. 1959; 1968) understands the issue of employee satisfaction and motivation and points out that managers have to suit the factors well to suit the special needs of their employees. There has to be a balance between the motivator factors, which are based on an individual's need for personal growth and the hygiene factors, which are based on the needs of the business to avoid disagreeableness at work.

Comparing Theory X and Y with Herzberg's Two-Factor Theory, Charles Handy's motivation calculus (1993) is more an extension of Maslow's Hierarchy of Needs (1943). Charles Handy (1993) involves the needs, results and effectiveness as the major parts of his theory. All this management practices show that organizations need to execute strategies and engage their employees in order to have success in any economy. Charles Handy (1993) argues that the key to successful organizations lies in a better understanding of the needs and motivations of the people within them.

Charles Handy's (1995) article on virtual organizations shows that employees who are working in virtual teams will have difficulties in the sense of belonging (Davis and Bryant, 2003). In this context organizational effectiveness plays an essential part and to create it, business leaders need to focus on aligning and engaging with their staff.

It is necessary that business managers adopt a new way of thinking, or more literally, a new way of trusting. Charles Handy (1995) writes in his article about trusting employees and points out that many mangers often believe that control is connected with efficiency. As Charles Handy (1995) has foreseen the element of virtual work in organizations which is becoming as common as face-to-face work (Morello, 2005), managers and employees need to learn how to trust each other and work together.

The article "Future Work skills - 2020" (2011) provides a much more contextualised visionary approach which provides not just the drivers of change but analyses how these drivers will effectively re-determine the skills needed for our future workplace.

In addition, Charles Handy (1995) expects that people will have shorter and more careers and more part-time and volunteer jobs. It is amazing that 17 years ago Charles Handy (1995) was able to foresee the changes of our environment caused by globalization, technology and industrialization. He has explored the way in which the world of work is changing and what the thoughtful individual's choices and responsibilities should be. In the author's opinion Charles Handy (1995) illustrates the dangers for people who do not notice that the world is changing and clearly defined the future of work and the critical implications it will have on individuals, organizations and society.


Charles Handy (1995) focuses on virtual organization, the need for trust and describes how organizations will be structured in the near future. Referring to different management practices (MacGregor, 1960; Herzberg et al., 1959) the importance of belonging to a community - even in the virtual world is fundamental to organizational growth. For the next decade new skills and the flexibility to navigate in a rapidly shifting landscape of organizational forms will be required.

Charles Handy (1995) points out that businesses are not an integral element in someone's life. In his view, businesses are important elements within any nation and they have to change structurally to keep up with reality and to be more competitive. Businesses have to fit with the way society has changed, and they must change strategically. In agreement with Charles Handy's view (1995), businesses should not be a place to work and to produce a surplus. It is more important that they become 'membership communities'.