The term virtual organization describes a broad array of alternatives to traditional organizations that do not use binding agents such as real estate and physical proximity, full time employment, management hierarchy, and asset ownership to hold the organization together.
Why A Virtual Organization?
Some bootstrapping companies choose to create a virtual organization to minimize costs. They choose to make modest investments in software and other technology rather than the overhead associated with traditional organizations.
Other organizations are virtual out of necessity. For example, if three founders live in three different locations and don’t want to move, the company must be virtual.
Other virtual organizations may be formed for strategic reasons. Strategic partnerships and joint ventures can be considered virtual in some respects. They arise from the strategic assessment that certain lines of business are better achieved through such arrangements, rather than building and owning everything under one organization’s roof. Small bootstrapped companies as well as multinational corporations can take this route.
In yet other cases a temporary virtual organization will be assembled around a project. The movie industry very typically creates such structures to produce new films.
See the Wikipedia entry for much more details.