Focus: It's virtually the best way to run your business

THE SKIPS came for the furniture two weeks ago. Desks, chairs and the other familiar paraphernalia of office life were quietly consigned to the scrapheap, though this was no act of self-sacrifice or the final inglorious days of a dying business.

Instead, it was an oddly symbolic moment for the people at Cambridge Advanced Electronics, the engineering and design business in East Anglia, which was finally cutting ties with the traditional trappings of corporate existence and going virtual.

"I guess we had hedged our bets for about a year," says Philip Gaffney, the co-founder of CAE. "We put the furniture into storage a year ago but a fortnight ago we finally decided that it had to go."

CAE, a business with sales of pounds 1 million a year, took the plunge and became a virtual company last year. The directors ditched the company's offices, got rid of administrative staff and dispatched the firm's skilled consultants to their homes. The office furniture was placed in storage - just in case.

Mr Gaffney is in no doubt that the transformation has been a complete success. The company, he explains, has slashed overheads and improved its efficiency. The cost of employing an electronic engineering consultant, he estimates, has been cut by 50 per cent since CAE went virtual. Savings on rent alone are estimated at pounds 70,000 a year.

In addition, the quality of life for CAE people has been greatly enhanced by working at home, dispensing with the daily aggravation of commuting, operating more flexibly and being able to spend more time with their families.

"We are doing very well," Mr Gaffney says. "We are operating more efficiently, we don't have the stress of travel and we all like the freedom."

CAE is a typical example of the growing number of companies that have adopted the virtual route, shedding the fixed office and associated administrative functions in return for trading through the Internet from the homes of its key staff.

An example of another type of business, which does not rely as heavily on the Internet, is Studio Strategy, a successful media training and specialist publishing concern founded in the early 1990s by a former television producer, Simon Ellis. Studio Strategy now provides about 25 leading companies with media training expertise. Its specialist publication, On Air, provides insight into business-related programmes for corporate clients.

"When I looked at setting up the business, I knew that we were less likely to be taken seriously if we did not have one of the seven golden postcodes in London, like W1 or EC2," he says. So the company offers a WC2 postcode to the outside world but is in effect based in the Ellis family home in Cambridgeshire. From its origins as a one-man band, Studio Strategy today has a full-time staff of four and ten outside consultants.

As a result, Mr Ellis places great emphasis on effective communications as the antidote to luxurious office suites in highly priced Bloomsbury. "I have absolutely no regrets and if I add up what I would have spent on office premises, it would easily be a six-figure sum," he explains.

The success at CAE can also be measured by the growth in the number of consultants working with the virtual company. A year ago, CAE had a team of eight qualified people.Today the number is up to 20 and Mr Gaffney confidently says: "Very soon we will have about 40 and we receive many applications from engineers who wish to work at home, where they can spend more time with their families."

The precise number of virtual companies operating in Britain and the rest of Europe is almost impossible to gauge. But few doubt the age of the virtual company has arrived and that numbers are increasing.

Maarten Botterman, who oversees studies on teleworking and electronic commerce for the European Commission in Brussels, is among those who sees the emergence of the virtual company as a natural extension of the explosion in home-working.

According to a recent study from Mr Botterman's department, the number of teleworkers in Britain has now rocketed to 1.8 million, the equivalent of 7 per cent of the nation's workforce. The increase in telework is a consequence of the rapid development of key technologies, such as mobile telephones and the Internet, which in turn have encouraged the increasing use of intranets within business organisations. The technologies underpinning call-centre development, for example, have already created 400,000 jobs for Europeans, he estimates.

The Telecottage Association, which represents the growing army of home- workers, is more conservative and prefers the official UK Labour Force Survey figure of about a million teleworkers. But Alan Denby of the TCA shares Mr Botterman's view that the teleworker revolution will ultimately encourage the creation of more virtual companies.

"I think it will certainly evolve a lot more," he says. "We get the impression that some organisations will go virtual as they become bigger and more successful."

Mr Botterman says the trend reflects the wider change taking place in the old corporate culture. "In the old days, people liked to see offices, and companies liked to see their offices being used every day," he says. "But an office is a huge investment and recent studies have shown that in any 24-hour period, an office is only used for about 7 per cent of the time. That is a very expensive investment. Big organisations have justified the existence of such things in the past but it will be more difficult in the future, when companies are under pressure to add value."

CAE's Mr Gaffney fully understands. Before its transformation to a virtual company, about pounds 400,000 of annual sales were swallowed up in rents, staff salaries and other traditional overheads.

CAE has kept its plc status and, to outsiders, the business continues much as it did before. But today the company's engineers do their own admin work and Mr Gaffney's wife, Jane, is a part-time finance director who handles issues such as invoices and payments. Any other administration is outsourced.

Mr Botterman says going virtual will not suit all types or all sizes of company. The growth, he says, will be found in small and medium-sized enterprises (SMEs). I see the big growth in networking between SMEs," he says. "In the past, smaller businesses could never afford the technology but today they can work effectively together without the very high associated costs."

While it is fanciful to envisage a time when businesses like Barclays or Unilever have gone virtual, the trend among big companies in recent years has been to scale back head-office facilities and decentralise administration. The virtual company is the ultimate extension of that trend.

Mr Botterman sees the benefits of virtuality as an important tool in the fight to remain competitive. "The virtual workforce, talking to each other and their clients over the network, is the key to the company's structure," his report states. "It enables costs to be kept lean and ahead of the competition."

The virtual company seems likely to emerge in most of the obvious places where people are the key assets, such as consultancies. Studio Strategy's Mr Ellis is adamant that the concept of a virtual company lends itself particularly to the consultancy profession, which operates largely on other people's premises.

He points out: "If you are any good as a consultant, you are not in the office anyway. My clients want me to go to them."

Mr Botterman agrees that consultants and other areas of the creative professions will be the most fertile ground for the virtual company.

But there is general agreement that starting a virtual company from nothing poses substantial difficulties. The main problem is getting the company's name in front of its customers. Ideally, a business that has been in operation for some time would be best placed to make the switch to virtuality.

The acceptance of virtual companies by larger, more traditional undertakings may also pose difficulties. Most companies are used to dealing with the familiar structures of business life, such as head offices, layers of administration and frequent face-to-face meetings.

This suggests that large companies, too, will have to adapt their outlook and customs if the virtual company is to emerge and flourish.

Mr Gaffney accepts that multinationals will not necessarily want to do business with one man and a laptop in an attic office. He recalls that, initially at least, his business got off the ground partly because of the shiny office in Cambridge.

CAE had been established for 15 years, dealing with major international companies, before Mr Gaffney made his bold step. "I think it would be very hard for someone starting from scratch. You would have to show tremendous presence - either through having lots of money or from having a well-established business."

CAE does at least conform to standard practice by having regular meetings with key personnel. The meetings, however, take place in Mr Gaffney's home on the outskirts of Cambridge, rather than in an office.

There is a downside, notably the ability of virtual companies to keep tabs on key employees and ensure they are not poached. However, these are familiar worries for any company and the hope is that the attraction of home-working and the motivation of being self-employed will prove useful deterrents.