The topic states that is product costing important for virtual organisations that are outsourcing their production operations. Virtual organisations are those corporation that operate in the world of e-business or e-commerce. A virtual organisation can be defined as "Composed of several business partners sharing costs and resources for the purpose of producing a product or service...can be temporary...or it can be permanent. Each partner contributes complementary resources that reflect its strengths, and determines its role in the virtual corporation" Turban, E., McLean, E., and Wetherbe J. (1999) Information Technology for Management. 2nd Ed.
The key characteristic of the virtual organisations is it ability to change in a rapid and adaptable response to changing markets whether these arise as a result of globalisation, changing cost structures, changing customer needs and wants, or other similar reasons. The needs and requirements of virtual organisations require that each employee have the skills to contribute directly to the value chain of product and service design, production, marketing and distribution, thus contributing directly to the "bottom line".
Virtual Organisations are at simplicity with the initiative of porous and changing organisational limitations, changing their skills and skill levels through outsourcing and alliances. It is an organisation that has a low cost, high response, effective in utilisation of resources, empowerment of staff, low level of bureaucracy and high combination of Information Technology to support business processes and knowledge workers. Some examples of cyberspace organisation are Amazon.com and Ebay.com that operate its business activity through the Internet.
Outsourcing is the process of purchasing goods and services from outside vendors rather than producing the same goods or providing the same services within the organisation. The single most important strategic reason for outsourcing is to reduce or control operating costs. In an Outsourcing Institute survey, companies reported an average 9% reduction...